Global Economy
BoJ Rate Hike to 1.25% Marks 31-Year High as Yen Slides to 156.91
The Bank of Japan raised its benchmark rate by 25 basis points to 1.25%, its highest level in 31 years, as high wholesale prices and emerging consumer-price pressures reinforced the case for tighter monetary policy. The move was widely expected, but two dissenting votes and the absence of explicitly hawkish guidance tempered hopes for faster tightening. The yen instead weakened to 156.91 per dollar.
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On Friday, September 18, 2026 — The Bank of Japan raised its benchmark interest rate by 25 basis points to 1.25%, reaching a 31-year high as persistent inflation, including pressure linked to higher oil prices, kept tighter monetary policy on the agenda.
A modest increase widely expected
After a two-day policy meeting, the central bank moved its rate from 1.00% to 1.25% in a vote of seven to two. This was the first increase in three months and brings borrowing costs closer to the level policymakers consider neutral for the economy.
- Policy rate: Increased from 1.00% to 1.25%
- Vote: Seven in favor and two against
- Dissenters: Toichiro Asada and Ayano Sato
- Immediate market reaction: The yen weakened to 156.91 per dollar
Dissent limits expectations of faster tightening
Although the size of the increase matched market expectations, the two opposing votes surprised some participants who had not anticipated them. Hirofumi Suzuki, chief currency strategist at SMBC in Tokyo, said the decision itself was predictable but the dissent showed a degree of caution within the policy committee.
The central bank’s statement did not provide an explicitly hawkish outlook or a clear promise of more rapid increases. That lack of additional guidance weighed on expectations that the move would trigger a stronger rally in the yen.
Inflation pressures remain central to the outlook
The BoJ said the economy and prices were broadly following its baseline forecast, but underlying inflation still carried a risk of deviating from its 2% target. Wholesale inflation remained elevated, while price pressures developing in transactions between companies were beginning to feed into consumer prices.
The central bank added that underlying inflation was moving closer to 2%. For investors, the decision confirms a gradual normalization of Japanese monetary policy, but the yen’s immediate decline suggests markets are waiting for firmer future signals.