Bank of Japan lifts its policy rate to 1.25% on a 7-2 vote

The Bank of Japan raised its policy interest rate by 0.25 percentage points, from 1% to 1.25%, at its September 2026 meeting, Nation Thailand reported on 18 September. The report describes it as the highest level in 31 years, with the new rate taking effect on 24 September.

What happened

The board approved the increase by a 7-2 vote. According to the report, the bank cited rising inflation and said it expects consumer price inflation excluding fresh food to run clearly above its 2% target from the second half of fiscal 2026. It also said medium- to long-term inflation expectations have kept rising while real interest rates, meaning rates after adjusting for inflation, remain low.

The yen weakened after the announcement, even though higher domestic rates are normally seen as supportive for a currency. The report said investors concentrated on the two dissenting votes, which raised doubts about how much backing exists for further increases. Governor Kazuo Ueda was due to hold a news conference to explain the outlook.

Why it matters for traders

This is a useful reminder that a currency does not simply follow the direction of a rate decision. Markets trade the gap between what was expected and what was delivered, along with signals about the next step. A hike that comes with a divided vote and cautious guidance can leave a currency softer.

For yen pairs, the practical effects are on risk and cost. Moves can be fast around Japanese policy announcements and the press conference that follows, spreads on yen crosses can widen, and gaps are possible between sessions. Many yen positions are also held for interest differentials, so changes in Japanese rates feed into overnight financing charges or credits shown in a broker's swap table.

What to watch

• The bank's published summary of opinions and the next scheduled meeting date.
• Japanese inflation releases, which the bank has tied directly to its policy path.
• Position sizing and stop placement on yen pairs around announcements, since a sharp move can arrive in either direction.