Bank of Japan Accelerates Rate Hikes Amid Persistent Inflation
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Bank of Japan Accelerates Rate Hikes Amid Persistent Inflation
- The Bank of Japan (BOJ) raised its benchmark interest rate by 0.25 percentage points to 1.25% on Friday, September 18, 2026, marking the highest level in 31 years.
- This decision, made under the leadership of Governor Kazuo Ueda, signals a new phase in the central bank's policymaking, focusing on stabilizing inflation.
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The Bank of Japan (BOJ) announced on Friday, September 18, 2026, a 0.25 percentage point increase in its benchmark interest rate, bringing it to 1.25%. This move marks the highest interest rate in Japan since 1995 and represents an acceleration in the BOJ’s efforts to normalize monetary policy, which began in March 2024. The decision was approved by a 7-2 majority vote by the policy board.
The central bank’s action comes as Japan grapples with persistent inflationary pressures, driven by factors such as rising energy prices, global supply chain issues, and a weakening yen. Japan’s annual inflation rate held at 1.9% in August 2026, remaining at its highest level since December 2025, while core inflation, excluding fresh food, was 1.7%. Governor Kazuo Ueda indicated that the central bank is entering a new stage of policymaking, with a focus on stabilizing inflation around the 2% target. The BOJ’s outlook report in April 2026 projected inflation to be in the range of 2.5-3.0% for fiscal year 2026.
Despite the rate hike, the yen weakened against the dollar, falling by as much as 0.75% to around 157.14 yen per dollar following the announcement. This depreciation has been a concern for policymakers, as a weaker yen can increase import costs and further fuel inflation. The BOJ’s decision also follows similar monetary tightening measures by other major central banks, including the US Federal Reserve and the European Central Bank. The central bank has stated its intention to continue raising the policy interest rate in response to economic and inflationary developments.