TOKYO, JAPAN – SEPTEMBER 16: The Bank of Japan headquarters at dusk on September 14, 2026 in Tokyo, Japan. Tomohiro Ohsumi | Getty Images News | Getty Images The Bank of Japan has raised its policy rate by 25 basis points to 1.25%, the highest level since 1995. The move also marked an acceleration in the BOJ’s rate hike cycle since monetary policy normalization began in March 2024, with the increase coming three months after the BOJ’s last hike, compared with six months earlier. The decision was split 7-2, with board members Toichiro Asada and Ayano Sato dissenting from the walk. Both are seen as refflationists and were appointed by Prime Minister Sanae Takaichi earlier this year. The surge in rate hikes was widely expected: nearly 90% of economists surveyed by CNBC expected a 25 basis point adjustment. Respondents also correctly predicted dissenters from the decision. In its statement, the BOJ said the move was due to the risk of inflation deviating upwards beyond its 2% target. The central bank added that it aims to stabilize core inflation at “around 2%” so that price increases do not exceed its target and negatively affect the Japanese economy later. The increase comes amid rising inflation in the country and a historically weak yen, with the latest headline inflation rate for August at 1.9% and Tokyo and Washington carrying out a coordinated intervention to shore up the yen. The currency traded at 156.64 after the decision, weakening 0.45%, while the benchmark 10-year Japanese government bond yield fell 4.9 basis points to 2.947%. The dissident Asada noted that since the underlying inflation rate was below 2%, he was of the opinion that the economic situation may not be sound and instead advocated maintaining it. Core inflation in August stood at 1.7%, compared to 1.8% in July. Sato also said that the current economic and price developments did not appear to have accelerated substantially compared to before. Stock Chart IconStock chart icon The United States has been vocal about Japan continuing its rate-hiking cycle, putting pressure on Takaichi’s preference for loose monetary policy and expansionary fiscal policy. More recently, Treasury Secretary Scott Bessent told Bank of Japan Governor Kazuo Ueda to take “decisive monetary and market action” at the G20 finance ministers and central bank governors meeting earlier this month.
