India, Sept. 18 -- Japan's long-running shift away from ultra-loose monetary policy has entered another important phase. The Bank of Japan raised its benchmark interest rate to 1.25% on September 18, taking borrowing costs to their highest level since 1995. The decision also showed that policymakers are becoming more willing to move faster as higher energy costs and a weak yen create fresh inflation risks.

The BOJ increased its short-term policy rate by 25 basis points, up from 1%. Unlike its earlier pattern of waiting around six months between rate increases, the central bank acted only three months after its previous hike in June. That makes the latest decision particularly important for investors watching the future direction of Japan...