Bank of Japan Increases Interest Rates to 1.25%

The Bank of Japan lifted its uncollateralised overnight call rate to 1.25 percent on Friday, up from 1 percent, marking the highest policy rate level since 1995. The change was approved by the central bank’s policy board at the conclusion of a two‑day meeting.

The move was widely anticipated; a Bloomberg poll of 52 economists conducted between 4 and 10 September found unanimous expectation that the BOJ would raise rates. The increase follows a steady series of hikes that began in March 2024, when the bank first moved rates into positive territory after more than two decades of ultra‑low policy.

The BOJ’s decision comes amid external pressure from the United States to act against a weakening yen, while the bank also continues to monitor domestic economic conditions and inflation trends. Governor Kazuo Ueda is scheduled to hold a news conference later on Friday, where investors will be watching for any signs of a more hawkish stance.

The rate rise follows a recent policy shift by the U.S. Federal Reserve, which on Wednesday raised its federal‑funds target range by 25 basis points to 3.75 percent‑4 percent. Analysts note that the BOJ could consider further adjustments in the near term, though the exact path remains uncertain.