Economic conditions & trends

Bank of Japan Lifts Rate to 1.25%, a 31-Year High

Is this the bare minimum to stop the yen's slide or a blow to households already crushed by prices?

Published SEP 18

Bank of Japan Lifts Rate to 1.25%, a 31-Year High

Story

Above: Bank of Japan Governor Kazuo Ueda at the central bank's headquarters in Tokyo, Japan, on Sept. 18. Image credit: Akio Kon/Bloomberg/Getty Images

The Facts

The Bank of Japan raised its benchmark interest rate Friday to 1.25% from 1.0%, a 31-year high, at the close of a two-day policy board meeting. The policy rate now stands at its highest level since 1995.
The Wall Street Journal
EuroNews
The decision passed by a 7-2 majority, with board members Toichiro Asada and Ayano Sato opposing the increase. The two dissenters raised concerns about the strength of Japan's economic growth, according to Governor Kazuo Ueda.
The Asahi Shimbun
Kyodo News+
The move marks the shortest interval between hikes since the current cycle began in March 2024, coming three months after a June increase. It is the sixth rise since the bank ended its negative rate policy.
Nippon.Com
XINHUA
The bank said it "will continue to raise the policy interest rate" in response to economic and price developments. Ueda said monetary conditions remain accommodative, and more time is needed to judge whether price increases stay stable.
Kyodo News+
The Asahi Shimbun
Japan Today
Official data released Friday showed core inflation eased to 1.7% in August from 1.8% in July, remaining near the bank's 2% target. Oil and gas prices have risen this year amid disruptions to shipping through the Strait of Hormuz.
NHK
BBC News
U.S. Treasury Secretary Scott Bessent had urged Tokyo to allow rates to rise, following a joint intervention to support the yen. Despite the hike, the dollar strengthened, briefly trading above 157 yen, while the Nikkei 225 rose 1.4%.
The Asahi Shimbun
Nippon.Com
The New York Times

Sources Split

LEFT

CENTER

RIGHT

ESTAB
CRIT

CENTER

PRO
ESTAB

The Spin

Narrative A

Letting the yen slide forever would have locked in higher import costs and convinced markets that Japan will always tolerate currency weakness. A move to 1.25% is the bare minimum, and the immediate yen selloff proves the rate gap is still too wide to ignore. Delay only means harsher hikes later, because time is getting more expensive by the day.

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Narrative B

Squeezing mortgage holders and small businesses with higher borrowing costs does nothing for families already crushed by soaring energy and food prices. Core inflation is slowing to 1.7%, so this hike is about defending the currency and pleasing Washington. Raising rates while consumers pull back spending will not deliver wage growth.

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