Get you up to speed: Japan’s interest rate hiked to 31-year high at 1.25% as inflation rises
The Bank of Japan has raised its benchmark interest rate from 1 to 1.25 percent, the highest level in 31 years, to combat rising inflation. This decision was made amid pressures from rising energy prices and the Federal Reserve’s recent rate hikes.
The Bank of Japan is responding to pressure for further rate hikes amid rising inflation and a tightening labour market. BoJ Governor Kazuo Ueda’s upcoming post-meeting briefing is expected to provide insights on the future trajectory of interest rate adjustments.
The Bank of Japan’s decision to raise interest rates to 1.25 percent has prompted analysts to monitor BoJ Governor Kazuo Ueda’s upcoming briefing for insights on future monetary policy adjustments. As inflationary pressures persist, the market is increasingly concerned about the implications of a widening US-Japan rate gap and its potential impact on the yen’s value and import costs.
What remains unclear — The timing and pace of further interest rate increases by the Bank of Japan have not been specified.
Bank of Japan raises interest rate to 31-year high of 1.25% amid inflation
News|BanksJapan’s interest rate hiked to 31-year high at 1.25% as inflation rises
Bank of Japan raises benchmark interest rate from 1 to 1.25 percent, pledging to help counter inflation risks.
Published On 18 Sep 202618 Sep 2026
The Bank of Japan (BoJ) has raised interest rates by 0.25 to 1.25 percent, pushing borrowing costs to their highest level in 31 years, amid rising inflation and wages, and pressure from Washington.
The move on Friday marked the first hike since June, and takes interest rates closer to levels the BoJ deems neutral to the economy, marking another step away from decades of ultra-low rates that cemented the yen’s status as a cheap global funding currency.
Japan is grappling to contain inflation, which is being driven by factors including rising energy prices, global supply pressures and domestic inflation exceeding the 2 percent target.
Core consumer inflation held steady near the target in August, data showed on Friday, as companies continued to pass on rising costs for a wide range of food and grocery items.
The country also faced a “slow-moving demographic shock” with a shrinking labour pool lifting wages, a structural factor that cannot be dismissed as temporary, BoJ Executive Director Koji Nakamura said on Monday.
The Federal Reserve’s rate hike on Wednesday, and the prospect of another one later this year, have added pressure on the BoJ to keep pace.
Further widening of the United States-Japan rate gap risks weakening the yen and lifting inflation through higher import costs, analysts told the Reuters news agency.
Its policy rate also remains lower than the European Central Bank, which raised its key rate to 2.5 percent last week.
Such pressure could affect the tone of BoJ Governor Kazuo Ueda’s post-meeting briefing, which will be closely watched by markets for clues on the timing and pace of further increases.