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Japan Raises Interest Rates to 30-Year High Amid Inflation Concerns

TOKYO (AP) — The Bank of Japan (BOJ) on Friday increased its key policy rate to 0.75%, the highest level in 30 years, in an effort to combat persistent inflation. The move, widely anticipated by financial markets, comes as Japan grapples with rising prices despite a recent economic contraction.

The 0.25 percentage point rate hike marks a significant shift for the BOJ, which has maintained near-zero or negative interest rates for years to stimulate the economy and combat deflation. While the rate remains low by international standards, it signals a growing concern within the BOJ that inflation, currently at 3% excluding volatile fresh food costs, is becoming entrenched.

“It is highly likely that wages and prices will continue to rise moderately,” BOJ Gov. Kazuo Ueda told reporters, emphasizing the need for vigilance despite diminished economic risks.

The rate hike is expected to raise borrowing costs for mortgages and other loans but also increase yields on savings deposits. The yen initially weakened against the U.S. dollar following the announcement before recovering and investors are betting on the BOJ to raise rates further, which is expected to draw investment into Japan seeking higher yen-denominated yields.

The decision follows a period of significant economic challenges for Japan, including an aging and declining population, persistent deflation, and a weakened yen, which has increased import costs for consumers and businesses.

Analysts predict that the rate hike could have broader implications for global markets, potentially undermining the “carry trade” strategy and dampening demand for assets like cryptocurrencies. However, Ueda noted that with inflation at about 3%, real interest rates remain in negative territory.

The BOJ’s decision mirrors similar challenges faced by other central banks, including the U.S. Federal Reserve, in balancing economic growth with inflation control.

[Associated Press Photos]

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