BOJ said to favor quarter-point rate hike to 1.25% on Sept. 18

September 3, 2026 at 12:57 PM2 min

This digest was compiled by AI from multiple sources — links to the originals are below.

The Bank of Japan is leaning toward raising its benchmark interest rate by a quarter point to 1.25% at its Sept. 18 meeting, according to people familiar with the matter. Officials see inflation risks skewed to the upside, with service prices and yen weakness strengthening the case for action. The yen weakened slightly after the news, trading around 157.08 per dollar late Thursday in Tokyo.

Key Facts

BOJ officials will consider raising the policy rate from 1% to 1.25% at the two-day meeting ending Sept. 18.
The yen traded around 157.08 per dollar late Thursday afternoon in Tokyo after the news.
US Treasury Secretary Scott Bessent discussed the importance of sound policy formulation with BOJ Governor Kazuo Ueda during a bilateral meeting.
Overnight index swaps imply investors are primed for a rate change in two weeks.

Rate Decision Outlook

BOJ officials will mull an increase in the policy rate from 1% at the two-day meeting ending on Sept. 18, according to people familiar with the matter. They continue to see inflation risks as skewed to the upside, with service prices and ongoing weakness in the currency strengthening the case for action. For now, officials see economic developments broadly in line with their outlook, the people said. There has been no major change in the situation that would require opting for a larger move of half a percentage point, one of the people said.

Market Reaction

The yen weakened a tad in brisk trade after the news, as some traders had apparently been positioned for a larger move following hawkish comments from a board member earlier this week. The yen was trading around 157.08 per dollar late Thursday afternoon in Tokyo. Pricing in overnight index swaps implies that investors are primed for the rate change in two weeks. With expectations so elevated, a decision to wait could itself risk jolting global financial markets.

International Pressure

The BOJ decision will come under unusually intense scrutiny from Washington. US Treasury Secretary Scott Bessent repeatedly made it clear that he wants higher Japanese rates in a series of interviews and statements during a Group of 20 meeting of finance ministers earlier this week. During a bilateral meeting with Governor Kazuo Ueda, Bessent discussed "the importance of sound policy formulation to anchor inflation expectations and avoid excess currency volatility," according to the Treasury Department.