Bank of Japan raises interest rate to 1.25%, highest level in 31 years

The Bank of Japan is raising its policy rate by 25 basis points, from 1.0% to 1.25%. That is the highest interest rate level in more than three decades. The decision was taken by seven votes to two. The Japanese central bank says it intends to continue raising interest rates if economic and inflation expectations materialise.

In brief:

• The Bank of Japan raises the interest rate to 1.25%, the highest level in around 31 years
• The decision is taken by a vote of 7 to 2
• The central bank wants to tighten further if the economic outlook stays on track

Highest interest rate since the early 1990s

The Bank of Japan decided on 18 September 2026 to raise the uncollateralised overnight call rate to around 1.25%. That is the highest level Japan has reached in some 31 years. The move is made with a clear majority within the policy committee: seven members vote in favour, two are against.

At the same time, the central bank adjusts the associated rates. The interest paid on banks’ deposits at the Bank of Japan is set at 1.25%, and the basic loan rate rises to 1.5%.

Recovery and inflation set the pace

According to the Bank of Japan, the Japanese economy is recovering moderately, though there are signs of weakness that are partly linked to the unrest in the Middle East. Underlying inflation is gradually moving towards the 2% target.

The central bank says it is prepared to press ahead with monetary tightening, but explicitly ties this to whether economic and price developments remain in line with its own expectations. An automatic series of increases is therefore not on the cards.