Japan’s central bank raised its main interest rate on Friday.

It went up to 1.25% from 1.0%.

That is the highest level in 31 years.

The Bank of Japan wants to make money policy normal again.

For many years, rates were near zero or below zero.

Low rates help people borrow and spend money.

They fight deflation.

The rate is for short-term loans between banks.

People expected this raise.

The bank met for two days.

Bank of Japan Gov. Kazuo Ueda spoke about the decision.

He said the bank thought about the war in Iran.

It thought about more demand for artificial intelligence.

It thought about currency moves.

He told reporters the Japanese economy is getting better slowly.

Inflation is close to the 2% target.

Two of the nine board members did not agree.

Ueda said they worry about Japan’s growth.

Analysts say another raise is possible later this year.

It could come early next year.

Ueda said more time is needed.

He wants to see if prices stay stable.

He said wage growth and other risks must be watched.

The U.S. Federal Reserve also raised its key rate this week.

This is its first raise since 2023.

It wants to fight high inflation.

The U.S. has pushed Japan to raise rates.

The U.S. worries about the weak yen.

The two nations worked together recently to help the yen.

The dollar got stronger after the Bank of Japan’s move.

It briefly went above 157 yen.

It went above 160 yen earlier this year.

Japan’s inflation is now about the 2% target.

But some people say prices are too high.

This is especially true for gas and oil products.

Economist Harumi Taguchi works at S&P Global Market Intelligence.

She said crude oil prices are high.

She said the Bank of Japan will likely raise rates again soon.

This limits the risk that prices rise too much.

She said higher rates may hurt the economy.

Small and medium businesses will pay more to borrow.

Mortgages will cost more too.

Analysts also worry about government spending.

Prime Minister Sanae Takaichi’s government promised tax cuts and defense investments.

Public debt is already growing fast.

Tokyo’s Nikkei 225 rose 1.4% after the decision.