Policy rate raised to 1.25 percent in 7-2 vote
The Bank of Japan (BoJ) raised its policy rate by 25 basis points to 1.25 percent, effective September 24, 2026, in a 7-2 vote. Members cited inflation nearing the 2 percent target, rising cost pass-through and accommodative financial conditions.
Seven back higher rates
The September 17-18 meeting raised the overnight call rate target from around 1.0 percent to around 1.25 percent.
The complementary deposit facility rate became 1.25 percent; basic loan and discount rates rose to 1.5 percent, effective September 24. Kazuo Ueda, Ryozo Himino, Shinichi Uchida, Hajime Takata, Naoki Tamura, Junko Koeda and Kazuyuki Masu supported all three decisions.
Toichiro Asada opposed tightening because inflation excluding fresh food remained below 2 percent and economic strength was uncertain.
Ayano Sato dissented because activity and prices had not accelerated enough.
Takata and Tamura separately opposed the inflation outlook wording, arguing that underlying inflation had already broadly reached target.
Climate loans gain floating rates
Members unanimously approved floating rates for climate-response loans, capped at ¥50 trillion overall and ¥10 trillion per counterparty.
The program runs through fiscal 2030.
Disaster-area lending also moves to floating rates; pooled-collateral operations gain a floating-rate option.
Great East Japan Earthquake eligibility ends after the May 2027 disbursement.
Staff projected inflation excluding fresh food above 3 percent in the second half of fiscal 2026, reflecting energy costs and broader price pass-through.
Further tightening remains conditional
The BoJ said it would continue raising rates in response to activity, prices and financial conditions.
Members emphasized stabilizing underlying inflation around 2 percent rather than allowing an overshoot.
Middle East developments, AI-related demand and exchange rates remain central to the timing and pace.