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TOKYO, JAPAN - SEPTEMBER 16: The Bank of Japan headquarters stand at dusk on September 14, 2026 in Tokyo, Japan.
Tomohiro Ohsumi | Getty Images News | Getty Images
The Bank of Japan has raised its policy rate by 25 basis points to 1.25%, the highest level since 1995.
The move also marked a quickening in the BOJ's rate hike cycle since it started monetary policy normalization in March 2024, with the rise taking place three months from the BOJ's last hike, as compared to six months previously.
The decision was split 7-2, with board members Toichiro Asada and Ayano Sato dissenting from the hike. The duo are seen as reflationists and were appointed by Prime Minister Sanae Takaichi earlier this year.
The rise in rate hikes was widely expected, with almost 90% of economists surveyed by CNBC expecting the 25 basis points tightening. Those surveyed also correctly predicted the dissenters to the decision.
In its statement, the BOJ said the move was because of a risk that inflation it will deviate upward to beyond its 2% target.
The hike comes amid rising inflation in the country and a historically weak yen, with the latest inflation headline rate for August at 1.9% and Tokyo and Washington conducting a coordinated intervention to prop up the yen.
The currency traded at 156.64 after the decision, weakening 0.45%, while the benchmark 10-year Japanese government bond yield fell 4.9 basis points to 2.947%.
The U.S. has been vocal about Japan continuing its rate-hiking cycle, pressuring Takaichi's preference for an easy monetary policy and an expansionary fiscal policy.
Most recently, Treasury Secretary Scott Bessent told BOJ Governor Kazuo Ueda to take "decisive market and monetary steps" at the G20 finance ministers and central bank governors meeting earlier this month.
The strengthening of the yen is likely to provide some relief on Tokyo's energy import bill, which have seen its energy imports rise and widen its trade deficit to over 1 trillion yen in August.
This is due to Tokyo replacing Middle East oil imports with pricier U.S. oil so as to secure its energy supplies, analysts told CNBC.
