Japan's central bank has raised its interest rate to the highest level in 31 years

Japan made important news about money recently. The Bank of Japan raised interest rates again. This is now the highest rate in 31 years.

What is an interest rate? An interest rate is the cost of borrowing money. When you borrow money, you must pay it back. You also pay extra money. That extra money is called interest. Higher rates mean more money to pay back.

For many years, Japan kept rates very low. The rate was almost zero. This means people paid almost nothing extra when they borrowed money. Banks did this to help the economy. Low rates help people spend money and buy things.

But now things are changing. The Bank of Japan started to raise rates in 2024. This happened slowly. Each time, the rate went a little higher. Now it has reached the highest point since 1993. This is a very long time.

Why raise rates now? Higher rates can fight high prices. When prices go up fast, that is called inflation. Higher interest rates make people want to save money instead of spend it. When people save money, they buy less. When people buy less, prices stop going up so fast.

Higher rates also affect people and businesses. It costs more money to borrow. Families must pay more for home loans. Businesses must pay more for work loans. This can slow down spending and building.

The Bank of Japan must balance two ideas. They want to fight inflation. But they also want people to have good jobs and spend money. It is a difficult choice. Many people watch Japan's decision closely. Other countries may do the same thing.

Inspired by reporting from BBC News.