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Bank of Japan raises its policy rate to 1.25% on a 7–2 vote, three months after its last increase

The Policy Board voted 7–2 on 18 September to lift the overnight call rate target from 1.00% to 1.25%, saying underlying inflation is approaching its 2% goal. Two members dissented.

By FTC Editorial TeamPublished 2 min read

The Bank of Japan's head office building
Syced / Wikimedia Commons · CC0

The Bank of Japan raised interest rates on Friday 18 September 2026. The Policy Board voted 7–2 to lift the target for the uncollateralized overnight call rate to around 1.25%, from 1.00%, effective 24 September. The previous increase came on 16 June, when the board voted 7–1 to raise the target to around 1.0%. Our preview set out what traders were watching.

The vote and the new rates

  • Policy rate: raised to around 1.25%, a 7–2 majority vote
  • Complementary deposit facility rate: 1.25%, from 24 September
  • Basic loan rate (complementary lending facility): 1.5%
  • Dissents: Asada Toichiro and Sato Ayano voted against the increase. Asada argued that with core CPI still below 2%, the economy wasn't clearly strong enough to justify it; Sato said prices and activity hadn't accelerated enough to raise now
Bank of Japan raises its policy rate to 1.25% on a 7–2 vote, three months after its last increase — central bank rate path diagram
A central bank's policy rate path across recent meetings

Why the Bank moved

The Bank said Japan's economy "has recovered moderately," though the situation in the Middle East is weighing on activity. On prices:

  • Underlying CPI inflation has been "approaching 2 percent," helped by rising producer prices, high crude oil prices and yen depreciation feeding into consumer prices
  • Risk skewed upward: the Bank flagged a risk that underlying inflation could deviate above the 2% target as firms keep raising wages and prices, and as medium-term inflation expectations rise
  • Guidance: the Bank said it "will continue to raise the policy interest rate and adjust the degree of monetary accommodation," with the timing and pace depending on the Middle East situation, AI-related demand and the exchange rate

Two board members, Takata Hajime and Tamura Naoki, went further, dissenting from the price outlook itself on the grounds that underlying inflation had already reached a level consistent with the 2% target.

Bank of Japan raises its policy rate to 1.25% on a 7–2 vote, three months after its last increase — support and resistance diagram
Price bouncing between support and resistance

What it means for the yen

A rate increase narrows the gap between Japanese and US rates that has driven the yen's weakness and funded carry trades for years. The Federal Reserve raised its own target range to 3.75%–4.00% two days earlier (report), so even after today's move the gap remains wide. Japan's trade figures this week showed imports climbing faster than exports as the import bill grows (report), and Japan and the US intervened jointly to support the yen on 31 July (report). How interest rate decisions move currencies explains why the size of a move often matters less than the guidance that comes with it.

The Bank of England held its rate at 3.75% a day earlier while announcing a plan to run down its bond holdings (report).

What happens next

The Bank released its decision at 11:54 Japan time (02:54 UTC) on 18 September, after the board met on 17 and 18 September. The Summary of Opinions from the meeting is due on 1 October and the full minutes on 5 November. The next Monetary Policy Meeting is on 29–30 October, when the Bank also publishes its quarterly Outlook for Economic Activity and Prices. Live prices: USD/JPY and EUR/JPY.

Sources

  1. Bank of Japan: Change in the Guideline for Money Market Operations, 18 September 2026
  2. Bank of Japan: Change in the Guideline for Money Market Operations, 16 June 2026
  3. Bank of Japan: Monetary Policy Meetings, schedule for 2026

Common questions

Did the Bank of Japan raise interest rates in September 2026?

Yes. On 18 September 2026 the Policy Board voted 7–2 to raise the target for the overnight call rate to around 1.25%, from 1.00%, effective 24 September. The previous increase was on 16 June 2026.

What time was the Bank of Japan rate decision announced?

At 11:54 Japan time on Friday 18 September 2026, which is 02:54 UTC, after the two-day Monetary Policy Meeting held on 17 and 18 September.

What happens when the Bank of Japan raises interest rates?

Borrowing costs in yen rise and the gap between Japanese and US interest rates narrows, which can reduce the appeal of carry trades funded in yen. How the yen itself reacts depends on what markets expected and on the Bank's guidance for later meetings, not only on the size of the move.

When is the next Bank of Japan meeting?

29–30 October 2026, when the Bank also publishes its quarterly Outlook for Economic Activity and Prices. The Summary of Opinions from the September meeting comes out on 1 October.

What is Japan's interest rate now?

The Bank of Japan's policy rate is 1.25% following the 18 September 2026 decision, up from 1.00%. The complementary deposit facility rate is also 1.25% and the basic loan rate is 1.5%, both effective 24 September.

Why did the Bank of Japan raise rates?

It said underlying CPI inflation has been approaching its 2% target, with producer prices, high crude oil prices and yen depreciation feeding into consumer prices, and flagged a risk that inflation could overshoot if wage and price increases continue.

Who voted against the Bank of Japan's rate rise?

Asada Toichiro and Sato Ayano dissented. Asada argued core inflation was still below 2%, and Sato said price and activity growth hadn't accelerated enough to justify raising rates now.

This article is for information only and is not financial advice. Trading forex and CFDs carries a high risk of losing money. Read the risk warning. Spotted an error? Tell the editors.

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