The Bank of Japan decided to raise its policy rate to around 1.25%. The hike, the first in 3 months since the June meeting, reflects its judgment that it should prepare for the risks posed by higher crude oil prices and yen depreciation.
At its monetary policy meeting on 18 September 2026, the Bank of Japan decided to raise its policy rate to around 1.25%. The additional hike, the first in 3 months since the June meeting, appears to reflect its judgment that the pace of rate increases needs to accelerate in view of the risk of higher prices driven by rising crude oil prices and yen depreciation.
A policy rate of around 1.25% would be the highest level in approximately 31 and a half years, since April 1995. It would exceed the lower end of the neutral rate estimated by the Bank of Japan, making the pace of future rate hikes a key focus. Governor Ueda Kazuo (植田 和男) explained the reasons for the decision at a press conference in the afternoon.
The rate hike will push up variable-rate mortgages and corporate loan rates, while also increasing interest earned on household and corporate deposits, with broad implications for the Japanese economy.
The Bank of Japan had been increasingly alert to the possibility that factors such as higher crude oil prices, yen depreciation and expanding AI demand could push prices higher than expected. Concern had intensified over the risk that the underlying inflation rate could rise above 2%. Attention will focus on the pace of future rate hikes.