Bank of Japan Raises Rate to 31-Year High at 1.25%
The 7-2 decision lifts borrowing costs as inflation risks build and markets reassess yen-funded trades.
The Bank of Japan raised its policy rate to 1.25% from around 1.0%, taking borrowing costs to their highest level in 31 years as inflation risks and yen weakness weigh on the outlook.
The BOJ Policy Board approved the increase by a 7-2 vote on Sept. 18. The new target for the uncollateralized overnight call rate took effect Sept. 24.
The central bank said underlying consumer-price inflation was approaching its 2% target. It also cited higher crude oil prices, wage and price-setting behavior, AI-related demand and yen depreciation as upside risks.
The BOJ said future rate increases would depend on economic activity, prices and financial conditions. It did not set a timetable or commit to a specific size for its next move.
The decision followed an Aug. 31 meeting between U.S. Treasury Secretary Scott Bessent and Japanese Finance Minister Katsunobu Katayama. The two governments reaffirmed that an orderly yen market was important to global financial stability, but the official statement did not establish that U.S. pressure caused or directed the BOJ’s decision.
Higher Japanese rates can affect yen-funded carry trades, currencies, bonds and broader risk assets, including markets watched by crypto traders.
