Tokyo: The Bank of Japan today raised interest rates to their highest level in 31 years, marking another significant step towards normalising monetary policy as it seeks to curb price pressures driven by the energy crisis sparked by the Middle East conflict.

According to Oman News Agency, the move, the first rate hike since December, brings the BoJ into line with other central banks that have been tightening policy to combat inflation, such as the European Central Bank. In a widely expected decision, the BoJ raised its short-term rate from 0.75 percent to 1 percent, pushing borrowing costs to levels not seen in Japan since 1995.

The yen rose 0.1 percent to 160.215 against the dollar. The decision, which markets had anticipated, aligns with recent monetary tightening by the European Central Bank and Bank Indonesia, and comes ahead of a Federal Reserve meeting.

In a statement, the BoJ said the risk of a sharp economic downturn from the Middle East conflict had eased, thanks to government measures to ease the burden of higher fuel costs on households and progress in securing alternative energy supplies. The conflict has complicated the BoJ's policy path by intensifying inflationary pressures through higher oil costs, weighing on an economy heavily dependent on imported fuel.