Japan Hikes Rate to 31-Year High Amid US-Iran Conflict and Rising Oil Costs

The Bank of Japan raised its key rate to 1%, the highest since 1995, in response to inflation pressures linked to the ongoing US-Iran war and rising oil costs. The decision was widely expected, passing by a 7-1 vote among board members, with BOJ Governor Kazuo Ueda absent due to hospitalization.

The rate hike was driven by concerns over medium- and long-term inflation expectations, which have been rising in Japan. The central bank noted that companies are passing on rising oil costs to each other at a 'relatively fast pace,' potentially pushing up prices across various goods.

The decision also came as the yen has been under pressure, trading at around 160 yen to the US dollar due to low rates making imports more expensive. The BOJ said government steps to reduce household fuel costs and progress in securing alternative energy supplies have lowered the risk of a sharp economic downturn from the conflict.

The Nikkei 225 index rose as much as 1% after the announcement, briefly topping 70,000 points. However, Bitcoin came under selling pressure following the BOJ decision, with analysts citing concerns over the unwinding of yen carry trades and their impact on crypto markets.