Asia

Bank of Japan Raises Interest Rates to 31-Year High

Shivangi

Sep 18, 2026 3:48 PM IST

Category Asia

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Synopsis

The Bank of Japan raised interest rates to 1.25%, marking a 31-year high, while two board members opposed the move.

Key Highlights

• The Bank of Japan increased its policy rate to 1.25% from the previous rate of 1%.
• A 7-2 vote approved the increase, with two board members opposed.
• This is the highest level of the rate in 31 years.
• The yen, which was mainly unchanged until the decision is trading at 156.91 per dollar
• BOJ said underlying inflation is nearing its 2% target.

Friday, the Bank of Japan increased interest rates in Japan by 1.25%, which puts borrowing costs at a 31-year maximum.

Markets widely expected the rise at the end of a two-day policy meeting. In a 7-2 vote, the BOJ raised it from 1%, with board members Toichiro Asada and Ayano Sato dissenting. The action is seen as part of Japan’s exit from the ultra-low rates set in prior decades.

Two members of the board are against the increase

The rate hike was expected, but two dissenting votes took some investors off guard. At this meeting, the two board members voted against a rate hike.

The dissent only adds to the uncertainty over how soon the BOJ will again lift rates. Now investors are looking to a news conference with Governor Kazuo Ueda for further details on future Bank plans.

The BOJ said overall economic and price developments were largely as it had anticipated, but cautioned that underlying inflation might deviate from its 2% target.

Yen Falls After BOJ Decision

The yen fell back to 156.91 per dollar after the rate decision. Investors zeroed in on the absence of stronger signals about possible future rate increases and the two dissenting votes against the hike.

The BOJ added that wholesale inflation remains elevated and the rising costs being passed between businesses are already hitting consumer prices. It also said core inflation was nearing 2% as firms kept passing on higher wage costs to customers.

Japan Still Has Lower Rates Than Major Peers

Even this hike, however, is well below the level of interest rates set by a number of big central banks in addition to Japan. The rise on Friday also takes Japan’s rate towards BOJ estimates of neutral levels of 1.1% to 2.5%. It has sparked questions about how much further the central bank may take borrowing costs in the future.

What it means for businesses and Entrepreneurs of Australia

It is very important for Australian entrepreneurs and businesses to look at how the BOJ rate decision would impact them. The move had been widely expected and even raised the yen just after it was announced before investors shifted their focus to what the BOJ signals about future policy.

This could, therefore, have implications for Australian businesses that sell to, or import from, Japan, which is still in the process of moving away from its extended period of exceptionally low interest rates.

Source: Reuters