Bank of Japan raises benchmark interest rate to 1.25%, highest level since 1995

The Bank of Japan hiked its policy interest rate by 25 basis points to 1.25% on September 18, pushing borrowing costs to their highest level since April 1995. The decision passed with a 7-2 vote under Governor Kazuo Ueda, who framed the move as a necessary response to inflation pressures that refuse to cooperate with polite requests to calm down. Rising global energy prices, a stubbornly weak yen, and broader tightening cycles from central banks around the world all factored into the BOJ’s calculus. What drove the decision This latest hike came just three months after the BOJ raised rates to 1% in June 2026. That previous increase was itself a milestone, marking the first time Japan’s policy rate had crossed the 1% threshold in decades. The primary catalyst: inflation that continues to run hotter than the BOJ would like. Global energy costs, exacerbated by Iran-related conflicts in the Middle East, have pushed consumer prices higher. A weak yen compounds the problem by making imports more expensive, which feeds directly into the cost of everything from gasoline to groceries for Japanese households. Ueda emphasized the central bank’s commitment to stabilizing inflation near its 2% t...