Japan's Central Bank Picks Up Pace of Tightening With Rate Hike

By Megumi Fujikawa

TOKYO--The Bank of Japan raised its benchmark interest rate to its highest level since 1995, delivering the fastest rate increase of its current cycle to counter persistent inflation and ease the impact of a weak yen.

The widely anticipated move brings the policy rate to 1.25% from 1.0%, accelerating the usual pace as concerns mounts over persistent price pressures stemming from the Middle East energy shock and exacerbated by the yen's weakness.

The BOJ paused after its last rate increase in June, but hawkish comments from central-bank officials--along with supportive remarks from U.S. Treasury Secretary Scott Bessent--led markets to almost fully price in Friday's decision.

BOJ policymakers have repeatedly warned that underlying inflation could overshoot their 2% target, stressing the need to closely monitor upside risks.

The Federal Reserve's decision to also raise rates earlier this week added to the conviction that the BOJ will need to continue tightening in order to keep the Japan-U.S. rate differential as yen-friendly as possible.

Economists say it isn't a matter of whether the BOJ will keep raising interest rates, but how quickly and by how much.

The BOJ on Friday reaffirmed its stance to seek further interest-rate increases.

"Given that underlying CPI inflation has been approaching 2% and financial conditions have been accommodative, the bank will continue to raise the policy interest rate and adjust the degree of monetary accommodation," based on economic, price and financial conditions, it said in a statement.

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com

(END) Dow Jones Newswires

September 17, 2026 23:32 ET (03:32 GMT)