Japan raises interest rate to new 31-year high to curb rising prices

Japan's central bank has raised its main interest rate to a fresh 31-year high as it continues to move away from decades of ultra-low borrowing costs and as the country faces increasing economic pressures.

In a widely expected move on Friday, the Bank of Japan (BOJ) increased the rate from 1% to 1.25% - a level not seen since 1995.

It comes as major central banks around the world are hiking rates as higher energy prices caused by the Iran war are helping to push up inflation.

On Wednesday, the US Federal Reserve raised its benchmark interest rate for the first time in over three years, while the European Central Bank also increased its borrowing costs earlier this month.

The BOJ has been raising the rate since 2024 , when it stood at minus 0.1%. It has now hiked rates six times in the last two and a half years.

Since then the bank has been steadily putting up the rate as it tries to reach a level similar to other major economies.

When a central bank raises rates, the country's currency usually becomes stronger as it makes the it more attractive to traders.

Japan is facing several economic challenges including a persistently weak yen, rising prices and a shrinking workforce.