Japan's central bank raised benchmark interest rates to 1.25%, their highest since 1995, but markets reacted counterintuitively as the yen weakened, bond yields fell, and stocks gained 1.5%. A split 7-2 board decision with two dissenters signaled the BOJ may not adopt an aggressively hawkish stance, limiting the typical currency and bond support from rate increases.
The Bank of Japan raised its policy rate by 25 basis points to 1.25%, the highest since 1995, citing concerns that inflation could exceed its 2% target. The decision was split 7-2, with two reflationists dissenting. The hike accelerates the BOJ's normalization cycle amid rising inflation and a weak yen, with U.S. pressure supporting tighter monetary policy.