Bank of Japan Raises Rate to 31-Year High of 1.25%

The Bank of Japan raised its benchmark interest rate to 1.25 percent on September 18, 2026, marking the highest level in 31 years and continuing its exit from decades of ultra-loose monetary policy. The decision, which was widely expected by markets, was approved by a 7-2 vote of the policy board, with two members dissenting. The rate increase, a quarter-point move from 1.0 percent, was aimed at countering persistent inflation risks driven by rising energy prices and a weak yen. The yen weakened against the U.S. dollar following the announcement, trading around 157 yen per dollar. Market analysts attributed the currency's decline to the dissenting votes and a lack of explicit guidance on the pace of future tightening, which tempered expectations for a more aggressive hiking cycle. The Nikkei 225 stock index rose about 1.4 percent after the decision, reflecting a mixed market reaction. Board members Toichiro Asada and Ayano Sato, both appointed by Prime Minister Sanae Takaichi, voted against the hike.