TOKYO, JAPAN – SEPTEMBER 16: Bank of Japan headquarters at dusk on September 14, 2026 in Tokyo.
Tomohiro Osumi | Getty Images News | Getty Images
The Bank of Japan raised its policy interest rate by 25 basis points to 1.25%, the highest level since 1995.
The move also signals an acceleration in the BOJ’s rate hike cycle since it began normalizing monetary policy in March 2024, with rates rising three months after the last hike compared to six months ago.
The decision was split 7-2, with board members Toichiro Asada and Ayano Sato voting against the increase. The two are seen as reflationists and were appointed by Prime Minister Sanae Takaichi earlier this year.
Higher interest rates were widely expected, with nearly 90% of economists polled by CNBC expecting a 25 basis point hike. Those surveyed accurately predicted people who would oppose the decision.
The Bank of Japan said in a statement that the move was due to the risk that inflation would deviate upward beyond its 2% target.
The central bank added that it aims to keep underlying inflation stable at “around 2%” to prevent price increases from exceeding the target and subsequently having a negative impact on Japan’s economy.
The rate hike comes amid rising domestic inflation and a historically weak yen, with the latest headline inflation rate for August at 1.9%, and Japan and Washington implementing coordinated interventions to support the yen.
The currency traded 0.45% lower at 156.64 after the decision, while the benchmark 10-year Japanese government bond yield fell 4.9 basis points to 2.947%.
Mr. Asada, an opponent of the measure, argued that the economy may not be in good shape since the core inflation rate is below 2%, and advocated leaving it unchanged. Core inflation in August was 1.7%, down from 1.8% in July.
Mr. Sato also said that the current economic and price situation does not appear to be accelerating significantly compared to before.
The United States has been vocal about Japan continuing its rate-hiking cycle and is putting pressure on Mr. Takaichi, who wants monetary easing and expansionary fiscal policy.
Most recently, Treasury Secretary Scott Bessent instructed Bank of Japan Governor Kazuo Ueda to take “robust market and monetary measures” at the G20 Finance Ministers and Central Bank Governors meeting earlier this month.
