Bank of Japan lifts rate to 31-year high of 1.25% on Sept 18
The yen weakened after Japan’s central bank voted 7–2 for a rate rise, with markets awaiting Kazuo Ueda’s September 18 briefing on further increases
- On September 18, the Bank of Japan increased its policy interest rate by 0.25 percentage points to 1.25%, the highest it has been in 31 years.
- The decision was a response to rising inflation, with the central bank expecting consumer price inflation to exceed its 2% target later in fiscal 2026.
- The rate hike was approved in a divided 7-2 vote, which created uncertainty about future increases and caused the yen to weaken.
The Bank of Japan (BOJ) voted on September 18, 2026, to raise its policy interest rate by 0.25 percentage points to 1.25%, its highest level since 1995, in a widely expected move as inflation pressures increasingly feed through to consumer prices. The increase from 1% marks another step away from Japan’s decades of exceptionally low interest rates. The new rate takes effect on September 24, according to the BOJ’s policy statement.
Yen weakens after divided rate vote
The yen weakened after the announcement as investors focused on the BOJ board’s 7–2 vote. The two dissenting votes raised questions about how readily the central bank could secure support for further increases.
Although September’s rise was widely anticipated, the division within the board suggested that subsequent decisions could face differing views over the need for further tightening.
BOJ expects inflation above 2% in fiscal 2026’s second half
The BOJ expects annual inflation, measured by the consumer price index (CPI) excluding fresh food, to accelerate clearly above 2% from the second half of fiscal 2026. The forecast will be an important consideration for markets assessing the direction of monetary policy.
The central bank said medium- to long-term inflation expectations continued to rise, while real interest rates remained low. Increasing price pressures were also beginning to pass through to the prices paid by consumers for goods and services.
The BOJ retained language from its July outlook, stating that “the perspective of stabilizing underlying CPI inflation at a level around 2 percent becomes important”.
Ueda briefing to clarify outlook for further rises
BOJ Governor Kazuo Ueda is scheduled to hold a news conference at 1.30pm Thailand time on September 18. Investors will look for guidance on the timing and pace of further interest rate increases, as the policy rate approaches the level the central bank considers neutral.
The BOJ’s decision came one day after Japanese Prime Minister Sanae Takaichi reshuffled her cabinet and pledged to prioritise policies supporting economic growth.
