Japan’s central bank raises benchmark interest rate to 1.25%, the highest in 31 years

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1. 1h ago

   Bank of Japan Raises Interest Rate to 1.25%

   The Bank of Japan raised its benchmark interest rate to 1.25% on September 18, 2026, marking the highest level in 31 years. The central bank implemented the hike to curb rising prices and address inflation concerns. Despite the move, the Japanese yen dropped against the US dollar and hit a two-week low, as some market reactions suggested the hike underwhelmed investors. The decision reflects an acceleration in monetary tightening to keep pace with other global hiking partners.

   Why it matters

   Japan has struggled with persistent cost-of-living pressures, including high food prices that threaten to offset planned consumption tax cuts. This policy shift aims to stabilize the currency and manage inflation after decades of ultra-low rates.

   What is confirmed

   • The Bank of Japan raised its benchmark interest rate to 1.25%.
   • This is the highest interest rate in 31 years.
   • The rate hike was intended to curb rising prices and inflation.

   Still unconfirmed

   • The previous high for this rate was in 1995.

   What to watch next

   • Further adjustments to the benchmark rate by the Bank of Japan
   • Changes in the JPY/USD exchange rate
   • Updates on Japanese food price inflation and household spending
   Sources used for this update (18)

   1. CNBC — Bank of Japan raises interest rates to 31-year high, flags concerns over inflation
   2. BBC — Japan raises interest rate to new 31-year high to curb rising prices
   3. Bloomberg.com — JPY/USD: Japanese Yen Drops Against US Dollar After BOJ Raises Rates as Expected
   4. WSJ — Japan’s Central Bank Picks Up Pace of Tightening With Rate Hike
   5. WSJ — Bank of Japan Raises Rates, Making U.S. Less Alluring for Tokyo Investors
   6. The New York Times — Japan Raises Interest Rates to 31-Year High Under U.S. Pressure
   7. AP News — Japan’s central bank raises benchmark interest rate to 1.25%, the highest in 31 years
   8. Yahoo Finance — Yen slumps to two-week low after BOJ rate hike underwhelms
   9. Reuters — Morning Bid: BOJ struggling to keep pace with hiking partners
   10. Bloomberg.com — The BOJ’s Balancing Act With Bessent Is Only Going to Get Harder
   11. note.com — [Rate Hike Series 1] What exactly does a 1.25% policy rate refer to? The Bank of Japan only sets one single rate
   12. jen.jiji.com — Alexey Lutsenko claims Kazakhstan's second gold at 20th Asian Games
   confidence 90%