The Bank of Japan raised its policy rate to 1.25% in a 7-2 vote.
Why it matters: The move strengthens pressure on Japanese bond yields, the yen and yen-funded carry trades. It also shows the BOJ sees inflation risks building around its 2% target.
- The BOJ raised its policy rate by 25 basis points to 1.25% after a two-day meeting in Tokyo on Sept. 18, 2026.
- The vote was 7-2, with Toichiro Asada and Ayano Sato dissenting.
- The central bank said underlying consumer price inflation has been nearing its 2% target and could overshoot.
- AP reported the new rate is the highest in 31 years, while the BOJ said wage and price gains are lifting medium- to long-term inflation expectations.
The Bank of Japan lifted its benchmark policy rate by 25 basis points to 1.25% at the end of a two-day meeting in Tokyo on Sept. 18, 2026, according to the central bank's September policy decision. AP reported the move takes the policy rate to its highest level in 31 years, after a prolonged period of ultra-low borrowing costs in Japan. AP's report.
The decision was split 7-2. Policy Board members Toichiro Asada and Ayano Sato voted against the hike, according to the BOJ statement. The central bank said underlying consumer price inflation has been approaching its 2% target and warned it could overshoot, citing wage and price increases and rising medium- to long-term inflation expectations.
Markets are watching the policy shift closely because higher Japanese rates can affect domestic bond yields and the yen, and can alter the economics of yen-funded carry trades. Reuters reported that Japanese bond and currency markets moved after the decision, with investors recalibrating expectations for further tightening. Reuters.
The BOJ also said it will continue to assess whether inflation remains on track around its target as wage and price trends evolve. That leaves the pace of future increases dependent on incoming data rather than a preset path.
By the numbers
- 1.25% - The BOJ's new policy rate after a 25-basis-point increase.
- 7-2 - The vote split on the rate hike.
- 31 years - AP's comparison for how long it's been since the policy rate was this high.
What's next: The BOJ will watch wage, price and inflation data for signs that would justify additional tightening.