Bank of Japan lifts short-term rate to 1%

The Bank of Japan has raised its benchmark short-term policy interest rate to 1%, marking the highest level since 1995 and continuing its gradual departure from decades of ultra-low borrowing costs. The central bank's Policy Board approved the quarter-point increase by a 7-1 vote at a two-day monetary policy meeting that concluded on Tuesday, June 16, 2026. The new rate took effect on Wednesday, June 17.

Officials cited inflationary pressures stemming from elevated global energy prices, particularly crude oil, linked to ongoing tensions in the Middle East. The bank stated that rising oil prices were weighing on economic activity while also increasing the risk that companies would pass higher costs to consumers, potentially pushing inflation above its 2% target. Japan, which relies heavily on imported fuel, is particularly vulnerable to such shocks. Deputy Governor Shinichi Uchida, who presided over the meeting in place of hospitalized Governor Kazuo Ueda, noted that a recent agreement between the United States and Iran to reopen the Strait of Hormuz had reduced some immediate risks, but uncertainty remained over supply-chain normalization and broader market impacts.