Bank of Japan raises interest rates to 31-year high amid Iran war inflation pressures

Country follows ECB in increasing borrowing costs, but US Fed and Bank of England expected to hold rates

The Bank of Japan (BoJ) has raised interest rates to a 31-year high, as it tried to dampen inflationary pressures created by the Iran war.

Policymakers in Tokyo raised the BoJ’s short-term policy rate by a quarter of one percentage point, to 1% from 0.75% , and warned that companies were passing on rising oil costs to each other at a “relatively fast pace”.

The BoJ decided to tighten monetary policy despite the fall in the oil price in the past few days, as Washington and Tehran agreed the basic structure of a peace deal , and also despite Japan’s annual core inflation having fallen to a four-year low of 1.4% ​in April.

The central bank’s governor, Shinichi Uchida, told a press conference in Tokyo that the signing of a memorandum by the US and Iran to end the Middle East conflict was “a welcome move”. He also warned there was “uncertainty” about how quickly oil supplies will rise.

“Compared with the previous meeting, the risk of a sharp deterioration in the economy has diminished. On the other hand, price rises are broadening, and there is a risk that underlying inflation may deviate from our target,” Uchida said.

“With underlying inflation approaching 2%, it’s important to ensure we achieve our target stably.”

The BoJ also said the risk of Japan’s economy deteriorating sharply from the Middle East conflict had diminished. It cited the government’s relief package to help households facing high fuel costs.