Bank of Japan's 31-year-high policy rate has not lifted the yen

Japan raised its benchmark rate to 1.25%, the highest in 31 years, and the currency remains under pressure while long yields break records.

Assembled by Claude from 9 sources at 9 outlets · Sunday, September 27, 2026, Evening edition, 5:21 PM EDT · no human byline

What happened

The Bank of Japan raised its policy rate to 1.25% this month, the highest level in 31 years, yet yen weakness remains unresolved finance.biggo.com. Another account described the move as Japan's first interest rate rise in 31 years, with yen weakness expected to persist because the central bank signaled caution about what comes next asiae.co.kr. Japan has moved from ultra-cheap money to a 1.25% policy rate simplywall.st.

The yen remains under pressure despite the closely watched hike globaltimes.cn. The BOJ has aligned itself with the Federal Reserve, raising rates to curb the currency's depreciation and bring inflation under control english.elpais.com. The Fed, the European Central Bank and the Bank of Japan all raised rates in September, while the Bank of England held its rate steady deccanchronicle.com.

Why it matters to investors

The policy rate is moving more slowly than the bond market. Japan's ten-year yield climbed to 3.08%, its highest level since 1996, as yields surged worldwide coinpedia.org. A policy rate at 1.25% against a ten-year yield above 3% is a wide spread, and it is the kind of spread that forces domestic institutions to reconsider holdings abroad.

That is the carry-trade channel. Cheap yen funding has underwritten positions in higher-yielding markets, and both legs of that trade are now moving: the funding leg is repricing while the currency has not strengthened in response finance.biggo.comglobaltimes.cn. Japanese consumer names are already being screened by retail investors on the back of the rate shift simplywall.st, and the domestic question has become whether the economy can absorb it globaltimes.cn.

What to watch

The currency has become a diplomatic subject as well as a market one. Japan said Trump voiced concern over the weak yen in his summit with Prime Minister Takaichi, and the finance minister's comments were reinforced hours later by a call with US Treasury Secretary Scott Bessent, according to a statement from Japan's Finance Ministry gulf-times.com. Takaichi now faces an autumn test in keeping economic policy on a credible path after the hike newsonjapan.com.

Watch whether the BOJ's signaling changes, since the expectation of continued yen weakness rests on the central bank having indicated caution rather than a sequence asiae.co.kr. Watch the ten-year yield against the 1996 benchmark it has now passed coinpedia.org. And watch whether the Fed and the ECB keep moving in the same direction, because the September alignment is what the BOJ leaned on deccanchronicle.comenglish.elpais.com.

Sources

1. deccanchronicle.com: RBI Seen RAISING Repo Rate By 25 Basis Points In October Policy Meet (2026-09-27)
2. globaltimes.cn: Japanese economy shrouded in greater uncertainty as yen predicament deepens (2026-09-27)
3. english.elpais.com: Operation Save the Yen: Japan partially turns off the cheap money tap, with a little help from ... (2026-09-27)
4. newsonjapan.com: Takaichi Faces Autumn Test After Trump Talks And BOJ Rate Hike | News On Japan (2026-09-27)
5. coinpedia.org: From Tokyo To Washington, Bond Yields Are Breaking Records - Coinpedia Fintech News (2026-09-27)
6. finance.biggo.com: Won's Surplus Driven by Semiconductors, Yen's by Investment Income - BigGo Finance (2026-09-27)
7. simplywall.st: 3 Japanese Consumer Stocks Retail Investors Are Watching After The Bank Of Japan Rate Shift (2026-09-27)
8. asiae.co.kr: Japan Raises Interest Rate for First Time in 31 Years, But Yen Weakness Expected to ... (2026-09-27)
9. gulf-times.com: Japan says Trump voiced concern over weak yen in summit with PM Takaichi - Gulf Times (2026-09-27)