The BOJ faces a tricky trade-off: Raising interest rates could help lower inflation but higher rates also make borrowing costlier, increasing expenses for the government and businesses.

The bank’s governor Kazuo Ueda – a central figure in deciding interest rates – missed this week’s meeting due to being in hospital as he is treated for an infected liver cyst.

But, along with other BOJ policymakers, he has expressed an increasingly positive stance on raising rates in recent months.

• Even if the situation remains unclear, should it be judged that upside risks to prices outweigh downside risks to economic activity, it will be necessary to thoroughly discuss the pros and cons of raising the policy interest rate,” Ueda earlier this month.
• Prime Minister Sanae Takaichi, known for her support of boosting spending in the country, has previously dismissed the idea of hiking interest rates, though she is under pressure to bring down Japan’s inflation.
• However, she has not publicly criticised the BOJ’s push for higher rates since taking office last year.

The latest rate rise is the second since Takaichi took office, and had been expected since the BOJ raised its policy rate to “around 0.75%” in December.

The decision to raise rates also comes as the bank aims to stabilise the yen, which has come under pressure from other major currencies like the US dollar and the euro.

“There has been a sense that the yen is too cheap and that raising its currency will not hurt,” said University of California San Diego business professor Ulrike Schaede.