The Bank of Japan raised its target interest rate by a quarter percentage point to 1.25%, the highest level since 1995, as policymakers joined the U.S. Federal Reserve and European Central Bank in tightening monetary policy to combat inflation.
The decision, announced Wednesday, was not unanimous — two board members dissented from the hike, a deviation from expectations that unsettled markets. The yen fell 0.72% to 157.10, down from around 153.40 at the start of the week, according to Jim Reid, strategist at Deutsche Bank. Japan’s government bond curve steepened, with two-year yields falling 2.2 basis points and 30-year yields rising 3.2 basis points.
The BoJ has been in a rate-hiking cycle since 2024, when it lifted its policy rate out of negative territory for the first time in two decades. Policymakers faced mounting pressure to raise borrowing costs as the yen steadily weakened against the dollar this year, reaching levels that previously prompted intervention to stabilize the currency.
While the central bank reiterated it will continue raising rates if economic and inflation conditions evolve as projected, the two dissenting votes drew market attention. Reid noted that the reaction underscored lingering caution within the BoJ on further tightening.
Meanwhile, the Bank of England voted unanimously to leave interest rates on hold at 3.75%, resisting the broader rate-hiking trend this month.
In separate data, retail sales across Great Britain rose 0.9% in the June-to-August quarter, according to the Office for National Statistics. Sales volumes in August alone increased 0.5%, reversing a 0.5% drop in July and beating economist forecasts of a 0.2% decline.
Non-store retailers saw a particularly strong June, likely driven by consumers favoring online purchases over high-street shopping during the summer heatwave. Retailers selling alcohol and beverages posted solid gains across all three months, citing promotions, hot weather, and demand tied to the men’s football World Cup.
ONS senior statistician Jon Gough said food store sales also rose, with supermarkets performing well in July and August.
The latest retail figures add to signs of resilience in the UK economy, coming after last week’s upward revision to July GDP growth.
