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

It went up to 1.25% from 1.0%.

This is the highest level in 31 years.

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

For many years, it kept rates at zero or below.

Those low rates were to help people borrow and spend.

They were also meant to fight falling prices.

The rate is for short-term loans between banks.

People expected the rise after a two-day meeting.

Bank of Japan Gov. Kazuo Ueda said the decision looked at some risks.

These include the war in Iran, more demand for artificial intelligence, and currency moves.

He told reporters the Japanese economy is getting better slowly.

He also said inflation is close to the 2% target.

Two of the nine board members did not agree.

Ueda said they were worried about how strong Japan’s growth is.

Analysts say another increase may come later this year or 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.

It was the first increase since 2023.

The goal is to fight high inflation that will not go away.

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

It is worried about the weak yen.

The two nations recently worked together to help the yen.

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

It briefly went above 157 yen.

Earlier this year, it went above 160 yen.

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

But some people say prices are rising too much.

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.

So she expects the Bank of Japan to raise rates again soon.

This would limit the risk that consumer prices rise more than hidden prices.

She added that higher rates may hurt the economy.

Borrowing costs will go up for small and medium businesses.

Mortgages will also cost more.

Analysts are also worried about big public spending.

Prime Minister Sanae Takaichi’s government promised this spending.

It includes tax cuts and defense investments.

But public debt is already growing fast.

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