BOJ hikes rates to 1.25% as inflation risk prompts normalization

The Bank of Japan raised its policy rate by 25 basis points to 1.25%, the highest since 1995, signaling a quicker rate hike cycle amid inflation risks that could push inflation back toward the 2% target. The decision, by a 7-2 vote with two dissents, followed expectations that inflation will stabilize near 2%, while the yen weakened and 10-year JGB yields fell slightly; August headline inflation was 1.9% with core at 1.7%. The move continues Japan’s monetary normalization begun in March 2024 and comes amid external calls to tighten policy.