The Bank of Japan headquarters in Tokyo on May 30, 2024.

Japan's central bank on Tuesday raised its policy rate to the highest in over 30 years at 1%, in line with expectations of economists polled by Reuters, accelerating policy normalization started in 2024.

This is the Bank of Japan's first hike since December, when it raised rates to 0.75%, and the first time since 1995 that rates have been raised to 1%.

The BOJ said the decision was split 7-1, with board member Toichiro Asada dissenting and advocating for a hold at 0.75%.

The policy tightening comes at a time when Japan has been struggling with a weak yen and inflation that has started to creep up, partly due to the Iran war.

The benchmark Nikkei 225 was up 0.46% after the decision, while the yen strengthened marginally to 160.22 against the dollar. Yields on the 10-year Japanese Government Bonds climbed 3 basis points to 2.615%.

The central bank said that it will continue reducing its government bond purchases by 200 billion yen per calendar quarter before halting the taper and maintaining monthly JGB purchases of 2 trillion yen from April 2027.