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Fed & Monetary Policy

Bank of Japan lifts rates to a 31-year high, and the yen falls anyway

The BOJ raised its benchmark rate to 1.25% in a 7-2 vote and signalled more increases, but the two dissents were enough to send the currency lower.

Assembled by Claude from 13 sources at 13 outlets · Friday, September 18, 2026, Morning edition, 10:23 AM EDT · no human byline

Disclosure. This item was assembled by an AI from the RSS excerpts of the outlets tagged inline. No human wrote or checked it before publication. Feed selection and categories are editorial choices by Teresa Lo. Nothing here is investment advice.

What happened

Japan's central bank raised its benchmark interest rate to 1.25% from 1.0% on Friday, a 31-year high euronews.com. The BBC reported the rate went from 1% to 1.25%, a level not seen since 1995 bbc.com. The decision was taken in a 7-2 vote, marking the highest level in three decades barrons.com. Two board members dissented thestar.com.myfinance.yahoo.com.

The bank signalled its readiness to keep pushing up borrowing costs channelnewsasia.com. Japan Today reported it said it would lift the rate further as it looks to counter inflation japantoday.com. Governor Kazuo Ueda said the decision was reached after looking at various risks, including the war in Iran and expanding market demand apnews.com. Bloomberg characterised the move as the fastest pace of tightening since 1990 bloomberg.com.

Why it matters to investors

The Wall Street Journal framed the increase as making the United States less alluring for Tokyo investors wsj.com. That is the transmission channel to watch, and it runs through the same benchmark rate the bank lifted to 1.25% wsj.comeuronews.com.

The immediate market reaction ran the other way. The yen slumped to a two-week low after the hike underwhelmed traders finance.yahoo.com. Barron's said the rate rise stoked a yen slump and raised a new headache for Treasury Secretary Scott Bessent barrons.com. Al Jazeera reported the increase came as inflation rises aljazeera.com. Channel NewsAsia and The Star both noted the bank's stated readiness to keep raising borrowing costs, which leaves the direction of travel clear even when a single decision disappoints channelnewsasia.comthestar.com.my. The Star reported the dissent plainly in its headline, recording that two board members voted against the increase thestar.com.my, and Yahoo Finance reported that the dissents came on a widely expected decision to raise rates finance.yahoo.com.

The Washington pressure

The New York Times reported that the widely expected move followed an unusual campaign by Treasury Secretary Scott Bessent for tighter monetary policy in Japan nytimes.com. Bloomberg headlined its account on the same point, tying the hike to Bessent's calls bloomberg.com.

Bessent defended the outcome, saying a stronger yen was "better for American exporters" abc.net.au. The combination is unusual: a foreign finance ministry lobbying publicly for a central bank to tighten, followed by dissents that markets read as dovish nytimes.comfinance.yahoo.com. Watch the gap between the bank's signalled path and the currency's response, because that gap is what pulled the yen down on the day of a rate increase channelnewsasia.comfinance.yahoo.com.

Sources

  1. channelnewsasia.com: Bank of Japan raises interest rates to 31-year high - CNA (2026-09-18)
  2. japantoday.com: Bank of Japan hikes rate to 31-year high of 1.25% to battle inflation (2026-09-18)
  3. wsj.com: Bank of Japan Raises Rates, Making U.S. Less Alluring for Tokyo Investors - WSJ (2026-09-18)
  4. barrons.com: Bank of Japan Rate Boost Stokes Yen Slump and Raises New Bessent Headache - Barron's (2026-09-18)
  5. euronews.com: Bank of Japan hikes rates to 31-year high to battle inflation - Euronews.com (2026-09-18)
  6. apnews.com: Japan's central bank raises benchmark interest rate to 1.25%, the highest in 31 years (2026-09-18)
  7. bbc.com: Japan raises interest rate to new 31-year high to curb rising prices - BBC (2026-09-18)
  8. thestar.com.my: Bank of Japan lifts rates to 31-year high, two board members dissent | The Star (2026-09-18)
  9. finance.yahoo.com: Yen slumps to two-week low after BOJ rate hike underwhelms - Yahoo Finance (2026-09-18)
  10. nytimes.com: Japan Raises Interest Rates in a Decision Muddied by U.S. Pressure - The New York Times (2026-09-18)
  11. bloomberg.com: BOJ Hikes at Fastest Pace Since 1990 After Bessent's Calls - Bloomberg (2026-09-18)
  12. abc.net.au: Japan raises interest rates to new 31-year high to counter rising inflation - ABC News (2026-09-18)
  13. aljazeera.com: Bank of Japan raises rates to 31-year high of 1.25% as inflation rises - Al Jazeera (2026-09-18)