BOJ Increases Key Rate: Updated Sept. 29, 2026.

BOJ lifts key policy rate to 1.25% amid growing inflation risk

Ideas

The Bank of Japan, after years of not increasing the key rate seems to have finally decided to use the strategy of increasing the key rate to try and limit inflation like many other countries have been doing for sometime now.

And as usual, not all the Policy Board members agreed with the idea of increasing the rate as maybe some see a rate increase as having too many side effects for the economy or Japanese households.

For a very long time, it seemed the BOJ's goal was to keep the key interest rate as low as possible as maybe they felt that would keep the Japanese yen a little weak as a way to help Japanese exporters as a weak yen meant or means exporter can get more for your products overseas.

But again two rate increases in the last three months is a good indication the BOJ has taken a different approach and is now not just focused on keeping the yen weak, which it might continue to do or not, but now focusing more on limiting inflation which seems to be affecting the domestic economy in significant ways.

The BOJ seems, again, to be taking a different approach then a few years ago when it was very reluctant to increase the key rate due to idea that the economy was just too weak at the time.

But that was then as now is now, and even now, the BOJ is still very conservative but seems more willing to bring the Japanese key rate more in line with the key rates of other economies globally.

Yes, now there seems to be more than just inflation that is affecting the Japanese economy as the weak Japanese yen, still, is a major challenge for the BOJ and even more now, global AI has become a major topic and there is a lot of discussion about the positives and negatives of AI going on globally.

The BOJ, for whatever reason, really hasn't been able to really control inflation to keep it at the 2 percent target rate, as it seems to above it and sometimes significantly above it for many months at a time.

The BOJ increasing the rate every six months seems like a good strategy as the six month interval span gives the BOJ time to see what is happening and importantly to see if there are any lingering side affects that need to be watched more closely.

And yes, the continued situation in the Middle East has kept oil prices higher than what anyone wants to see and its causing havoc on some economies globally including Japan.

Japan is a resource-poor country and as result has to import much of what is needs including energy, gas, and oil, but is sometimes subject to global energy price spikes like now with the Middle East situation.

And of course, there are some potential side affects, like for any rate increase globally, such as the increase in borrowing costs, which could affect small businesses in Japan significantly and homeowners who have mortgagees to pay and the interest on their loans will increase now.

Anytime a central increases the key rate there is always going to a slowdown in the economy but the trick is not find a rate that is not going to slow down the economy too much that it will cause major challenges if the rate is too high or not high enough.

And then there is the politics of the weak yen, which unfortunately, it seems whomever in the US can't handle a weak yen which gives Japanese export companies better prices for their products and causes the US dollar to be a little high for whomever in the US.

Its seems most central banks or many seem to work in unison as if the US central bank increases its rate than the EU bank will do the same and even some in Asia such as the central bank in South Korea might also consider increasing its key rate too.

Japan,  for a very long time, was the lone dissenter in keeping its key rate at zero or just below that as it always used to say that the Japanese economy, at that time, was just not strong enough to handle an increase, but it seems those days are long gone.

Have a nice day!

Article source:  https://mainichi.jp/english/articles/20260918/p2g/00m/0bu/026000c