The Bank of Japan raised its benchmark interest rate to 1.25% from 1% on Sept. 18, 2026, taking borrowing costs to their highest level in about three decades. The move was widely expected as Japan continues to unwind years of ultra-loose monetary policy, but it was underwhelming and weighed on the Japanese yen, which weakened sharply as investors focused on the lack of a clearly hawkish message from the central bank. Two policymakers opposed the rate increase, raising concerns about how quickly the central bank may be willing to tighten policy from here, and the dissent suggests the path toward further rate increases could be less straightforward. Japan's latest inflation data also gave the Bank of Japan a reason to remain cautious, with core inflation easing to 1.7% in August from 1.8% in July, keeping it close to the central bank's 2% target. The yen's weakness remains a major concern for Japanese policymakers, and Japanese Finance Minister Satsuki Katayama has signaled that Tokyo is prepared to take further coordinated action to support the yen, though the threat of intervention may limit further yen weakness.
BOJ raised its benchmark rate to 1.25%, pushing JGB yields to roughly three-decade highs.
BOJ hike was seen as underwhelming and non-hawkish, weakening the yen despite the rate increase.
