The Bank of Japan (BOJ) has raised its short-term policy interest rate to 1 percent, the highest level in 31 years, in an effort to control inflation caused by the energy crisis stemming from the Iran war and to normalize its monetary policy. The decision, announced on Tuesday, marks the first rate hike since December and aligns Japan with other major central banks that have tightened monetary policies to combat inflation.

According to Reuters, the BOJ stated that risks to Japan’s economy from Middle East conflicts have eased due to government measures to reduce energy costs and progress in securing alternative energy sources. However, the bank warned that rising energy costs are being passed quickly among companies, potentially increasing consumer prices. The BOJ also noted that medium- and long-term inflation expectations are rising, posing a risk of exceeding its target.

Following the announcement, Japan’s Nikkei 225 index rose 1 percent to a record high above 70,000, the yen strengthened slightly against the dollar, and 10-year government bond yields increased. One board member, Touichiro Asada, opposed the decision, citing greater downside risks to growth.