The Bank of Japan today increased rates to 1.25 per cent, in a widely anticipated move to counter inflation.
Inflation in Japan is now sitting at close to 2 per cent.
Japan was the country that inflation forgot.
In announcing the decision, the Bank of Japan pointed to the situation in the Middle East, demand for AI products, and exchange rate fluctuations.
While that may seem low by Australian standards, macroeconomist Fujiwara Ippei, a professor at Keio University and the University of Tokyo, said even 2 per cent inflation was "maybe shocking" for some people in Japan.
Interest rates in Japan were aggressively cut in the 1990s in the wake of the country's asset bubble burst in the 1990s and the period of low growth that followed.
Inflation started increasing in 2021 on the back of the COVID-19 pandemic and then the wars in Ukraine and the Middle East, at times edging toward 3 per cent. In 2024, the Bank of Japan began a program of gradual rate rises to "normalise" the economy.
Professor Fujiwara said "a zero-inflation norm is really tricky" because people got used to nominal prices for things like lunch.
The US Federal Reserve voted on Wednesday, local time, to raise rates to between 3.75 and four per cent, and the European Central Bank announced an increase last week.
Professor Fujiwara, who worked at the Bank of Japan for almost two decades, said the overt pressure to raise rates from the US was "quite unusual", but he believed the Bank of Japan would have made the decision to raise today's rate regardless.