TOKYO — The Bank of Japan raised its policy rate to 1% on Tuesday. This increase marked the highest level in over 30 years and the first time the rate reached 1% since 1995.

Board member Toichiro Asada dissented from the vote, advocating for the policy rate to remain at 0.75%. Governor Kazuo Ueda missed the policy meeting due to hospitalization for an infected liver cyst.

The central bank announced it will continue reducing its government bond purchases by 200 billion yen per calendar quarter until April 2027, after which the bank will maintain monthly Japanese government bond purchases at 2 trillion yen.

Japan's producer price index increased by 6.3% in May, representing its fastest rise in over three years. Despite this, Japan's core inflation rate fell to 1.4% in April, its lowest level since March 2022. Headline inflation also stood at 1.4% in April, remaining below the central bank's 2% target for the fourth consecutive month.

Jesper Koll, a financial services executive, said, "After twenty years of deflation, Japan is now in an inflationary upcycle." He added, "Emergency/crisis management monetary policy is no longer needed and the Bank of Japan wants to get back to a normal monetary policy." Japan maintained near-zero interest rates for two decades prior to the current policy normalization cycle that began in 2024.

The Japanese government allocated 11.7 trillion yen to currency market intervention operations during May. Following the central bank's rate decision, the Japanese yen traded at 160.22 against the U.S. dollar, and yields on 10-year Japanese government bonds increased by 3 basis points to 2.615%. The benchmark Nikkei 225 index increased by 0.46% on the day of the rate announcement.