The Bank of Japan joined other major global central banks in raising interest rates to head off an expected spike in inflation fueled by higher energy costs from the war in the Middle East.<\/p>\n
The bank said on Tuesday that it would raise its benchmark interest rate a quarter of a percentage point to 1 percent \u2014 the highest level in 31 years. Citing inflationary pressures from rising crude oil prices, the central bank said it would continue raising interest rates while monitoring prices and the broader economy.<\/p>\n
Japan, along with much of the rest of the world, is bracing for a surge in prices for oil, gas and other commodities driven by the closure of the Strait of Hormuz. An agreement<\/a> between the United States and Iran to reopen the strait is likely to provide relief. Still, economists expect war-related pressures to show up in Japan\u2019s pricing data already this month, and lingering supply-chain strains and higher inflation to persist<\/a> through the end of the year.<\/p>\n The Bank of Japan\u2019s deputy governor, Shinichi Uchida, said at a news conference that the deal to reopen the Strait of Hormuz had reduced risks to the Japanese economy, but that the situation remained uncertain, including how quickly the supply chain may return to normal.<\/p>\n \u201cWe don\u2019t know what will happen next,\u201d Mr. Uchida said.<\/p>\n The strategy is to get ahead of the coming price surge, drawing lessons from 2022, when Russia\u2019s invasion of Ukraine caused the last major disruption to global energy flows. At the time, the European Central Bank initially described inflation as \u201ctransitory\u201d and delayed raising rates, only to see eurozone inflation shoot past 10 percent.<\/p>\n This time, the E.C.B. quickly signaled its intention to tighten and followed through with a rate increase<\/a> on Thursday. Meanwhile, ahead of the U.S. Federal Reserve\u2019s first policy meeting this week under its new chairman, Kevin M. Warsh, data showed U.S. inflation climbing at its fastest pace in three years<\/a>.<\/p>\n Central bankers \u201clearned from the experience of 2022,\u201d said Naohiko Baba, chief Japan economist at Barclays. With data signaling price increases already this month, \u201cthey want to move before that happens,\u201d Mr. Baba said.<\/p>\n By clearly warning of a looming inflation spike, Bank of Japan officials had \u201cset all the preparations in place to raise rates,\u201d he said. \u201cIf it hadn\u2019t happened, everyone would have literally fallen out of their chairs.\u201d<\/p>\n After the Bank of Japan\u2019s decision, the benchmark Nikkei 225 surged above 70,000 for the first time before pulling back and closing slightly higher.<\/p>\n Japan has found itself in an awkward position over the past year. Since early 2024, the Bank of Japan has been gradually raising interest rates<\/a> as a burst of inflation \u2014 driven by lingering pandemic-era supply-chain snags and geopolitical shocks \u2014 allowed it to pivot away from decades of ultralow and even negative rates.<\/p>\n Then, last October, Sanae Takaichi won election as Japan\u2019s prime minister. Like Donald J. Trump in the United States, Ms. Takaichi has been a vocal proponent of a weaker domestic currency and low interest rates.<\/p>\n A weak yen has traditionally given Japanese exporters an advantage by making their goods artificially cheap in global markets. Ms. Takaichi\u2019s agenda, centered on stimulus, tax cuts and higher defense spending, requires significant government outlays, which become more difficult to sustain when borrowing costs rise.<\/p>\n The Bank of Japan last raised interest rates<\/a> in December and had held steady since then.<\/p>\n But in recent months, the world outside Japan has changed drastically. In February, the closure of the Strait of Hormuz cut Japan off from the Middle East, the source of about 90 percent of its crude oil imports. Businesses across the country had expected to raise prices in the coming months because of shortages of naphtha<\/a>, an oil byproduct used in everything from industrial inks to plastic packaging.<\/p>\n