Japan raises interest rate to new 31-year high to curb rising prices

ByPeter Hoskins Business reporter. 18 September 2026, 03: 56 BST.

Key points

• In a widely projected move on Friday, the Bank of Japan (BOJ) climbed the rate from 1% to 1.25% – a level not seen since 1995.
• Both Japan's Ministry of Finance and US Treasury Secretary Scott Bessent remarked at the time that they would not hesitate to conduct more joint interventions going forward.
• When it stood at minus 0.1%, the BOJ has been raising the rate since 2024.
• Core inflation fell to 1.7% in August from 1.8% the previous month but remains close to the bank's 2% target level.
• In August, Tokyo and Washington confirmed that they had jointly intervened to halt a slide in the yen after it fell to a fresh 40-year low.

Japan's central bank has raised its main interest rate to a fresh 31-year high as it continues to move away from decades of ultra-low borrowing costs and as the country faces increasing economic pressures.

It comes as major central banks worldwide are hiking rates as higher energy rates caused by the Iran war are helping to push up inflation.

While the European Central Bank additionally climbed its borrowing costs earlier this month, on Wednesday, the US Federal Reserve raised its benchmark interest rate for the first time in over three years.

When it stood at minus 0.1%, the BOJ has been raising the rate since 2024. It has now hiked rates six times in the last two and a half years.

Since then the bank has been steadily putting up the rate as it tries to reach a level similar to other major economies.

When a central bank raises rates, known as tightening monetary policy, the country's currency usually becomes stronger as it makes the it more attractive to traders.

"One of the world's last sources of ultra-cheap money is disappearing, " remarked market analyst Lale Akoner from investment business eToro.

Japan is facing a number of economic challenges including a persistently fragile yen, rising rates and a shrinking workforce.

Official figures published on Friday ahead of the BOJ announcement indicated that inflation eased slightly last month.

While Japan's inflation rate is not high by international standards, rising rates are a relatively new development in the economy.

Until lately the country had experienced highly low inflation or deflation – falling rates – for around three decades.

Global oil and gas rates have risen this year as the Iran war caused major disruptions to shipments through the key Strait of Hormuz shipping route.

Japan is particularly vulnerable to those supply interruptions as it is heavily reliant on energy from the Middle East. The country's currency has additionally been under pressure in recent months.

When both countries took action together to weaken the yen after the devastating earthquake and tsunami that hit eastern Japan, the coordinated intervention was the first since 2011.

Bessent has additionally been ramping up pressure on the BOJ to raise interest rates to assist backing the yen, calling on its Governor Kazuo Ueda to "do the right thing".

"If remains weak despite higher rates, the resulting inflation pressure could force the BOJ to tighten faster than markets or Japan's government would like, " Akoner remarked.

In short, japan raises interest rate to new 31-year high to curb rising prices is the central thread here, and readers can expect follow-up reporting as the picture becomes clearer.