The Bank of Japan moves to cool inflation driven by the Iran war energy shock, even as its own governor sits out the vote.

The Bank of Japan raised its benchmark interest rate to 1% on Tuesday – up from 0.75% – hitting a level Japan hasn’t seen in 31 years. The move was widely anticipated, but it still carries weight: this is a central bank that spent decades near zero, now tightening alongside the ECB and others as post-war inflation spreads globally.

Key details

Governor Kazuo Ueda missed the meeting for medical treatment, leaving Deputy Governor Shinichi Uchida to face the cameras. The lone dissenter was Toichiro Asada, the first BOJ board member hand-picked by dovish premier Sanae Takaichi, who argued that downside risks from the Middle East conflict outweigh inflation concerns.

Market reaction

The Nikkei 225 surged up to 1%, breaking above 70,000 for the first time on record. The yen briefly firmed, then slid to 160.29 per dollar, close to the line traders watch as the trigger for potential currency intervention by Japanese authorities.

Why it matters for traders

The BOJ’s direction of travel is clear: gradual hikes, roughly once every six to twelve months, without any surprise 50bp jumps. For risk assets, that’s actually a relief; a slower pace removes a major tail risk. But a yen hovering at 160 keeps intervention speculation alive, and with wholesale inflation at a 3-year high, there’s little chance the BOJ pauses anytime soon.

The Fed decision on Wednesday adds another layer. If officials signal a hike rather than a cut, dollar strength could push the yen even closer to levels that force Japan’s hand.

What to watch

Keep your eye on USD/JPY around the 160 level, the Fed’s Wednesday statement, and Japan’s core CPI – analysts expect it to climb back above 2% later this year as government energy subsidies wind down. If the yen keeps weakening, the next BOJ hike could come sooner than the market expects.

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