TOKYO — Japan’s central bank took a significant step Tuesday, lifting its benchmark interest rate to 1% — a level not seen in roughly 30 years — as the country grapples with a weakening currency and climbing prices.
The Bank of Japan increased its uncollateralized overnight rate by a quarter of a percentage point from its previous level of 0.75%, marking the latest move in the bank’s effort to bring monetary policy back to more normal territory.
For decades, Japan kept interest rates at or near zero — and even below zero at times — in an attempt to encourage borrowing and spending and fight off deflation that had weighed on the economy. The central bank has been gradually stepping away from that approach in recent months.
A major driver of the current inflation is the war in Iran, which has caused oil prices to surge. That has hit Japan especially hard because the country imports nearly all of its oil and natural gas.
The prolonged period of low interest rates also put downward pressure on the Japanese yen, which has slid to around 160 yen per U.S. dollar in recent months.
Notably absent from Tuesday’s policy board meeting was Bank of Japan Governor Kazuo Ueda, who has been hospitalized recently. Deputy Governor Shinichi Uchida was expected to represent the central bank at a news conference scheduled for later in the day.
Financial markets were already reacting ahead of the announcement. Tokyo’s Nikkei 225 index briefly climbed above 70,000 early Tuesday before pulling back slightly from those gains.
