Bank of Japan Raises Rate to 1.25%, Bringing Yen Funding and Policy Guidance Into Focus

Tokyo, 18 September 2026 – The Bank of Japan raised its policy interest rate to 1.25% from 1.00% on Friday, taking the benchmark to its highest level in 31 years. The decision moves the investment discussion from whether an increase would occur to how the higher rate will affect financing conditions and what the central bank signals about its next steps.

The increase was 25 basis points, equivalent to 0.25 percentage points, and was approved by a 7–2 vote. It came three months after the previous increase. The central bank’s stated concern was preventing inflation from overshooting its 2% objective. The decision is a confirmed policy action, distinct from the forecasts circulated ahead of the meeting, and should be assessed on that basis.