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Bank of Japan Raises Key Rate to 1.25%, Warns Inflation
The Bank of Japan raised the interest rate it uses to guide borrowing costs.
The rate went from 1.0% to 1.25%.
Seven board members supported the increase, while two opposed it.
The bank is worried that prices may rise faster than its 2% goal.
It said companies may continue raising wages and prices.
It also said people’s expectations about future inflation are increasing.
Events in the Middle East, demand connected to artificial intelligence, and currency movements could affect Japan’s economy.
The bank said it may raise rates further if economic and price conditions require it.
It also changed rules connected to disaster-area lending.
The Bank of Japan raised its key interest rate by 25 basis points to 1.25% from 1.0%.
The Policy Board approved the increase by a 7-2 majority vote.
The BOJ warned underlying inflation could rise above its 2% price-stability target.
It cited risks from Middle East developments, AI-related demand, and foreign-exchange movements.
The central bank said it would continue adjusting monetary accommodation based on economic and financial conditions.
- Who
- The Bank of Japan and its Policy Board.
- What
- The central bank raised its key interest rate to 1.25% and warned inflation could exceed its 2% target.
- Where
- Japan.
- When
- The decision was announced on September 18, 2026, at the BOJ’s latest monetary policy meeting.
- Why
- The BOJ cited rising wage and price expectations and assessed that underlying inflation could move above its 2% target.
Key facts
- New key rate
- 1.25%, up from 1.0%
- Rate increase
- 25 basis points
- Approval vote
- 7-2 majority
- Inflation target
- 2%
- Highest level
- The highest BOJ rate since 1995
- Basic loan rate
- 1.5% under the complementary lending facility
- Disaster-funding change
- The Great East Japan Earthquake will be removed from designated disasters after the May 2027 loan disbursement
Quotes
Bank of Japan
Japan’s central bank, speaking in its monetary policy meeting release
“As for underlying CPI inflation, there is a risk that it will deviate upward to a level above the price stability target of 2 percent, given factors such as firms’ behavior shifting more toward raising wages and prices and medium- to long-term inflation expectations rising.”
news18.com
“While there are various risks to the baseline scenario, attention continues to be warranted on the impact that the situation in the Middle East, the expansion in Al-related demand, and developments in foreign exchange rates have on Japan’s economic activity and prices.”
news18.com
Sources
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