Bank of Japan raises rate by 25 bps to 1.25%, highest since 1995
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The Bank of Japan raised its policy rate by 25 basis points to 1.25%, the highest level since 1995, according to data reported by cfi_forex. Core CPI stands at 1.7% year-on-year, while spring wage negotiations have yielded pay increases exceeding 5% for three consecutive years. Corporate goods prices and import costs have risen sharply. The 10-year Japanese government bond yield has broken above 3%, and the 30-year yield reached 4.18%, with bond auctions seeing declining bid-to-cover ratios. Recent institutional research reports indicate that this rate hike is a necessary step to restore the credibility of yen monetary policy, bringing the rate into the nominal neutral range of 1.1% to 2.5% and alleviating criticism that the BOJ is 'behind the curve.' The reports argue that rising wages and prices provide a basis for continued rate increases, and that yen depreciation pressure is temporarily contained. The research notes that the terminal rate, not the single action, will determine the outlook: if the BOJ stops at 1.25%, fiscal pressure may ease; but if it follows market expectations and hikes multiple times through mid-2027, surging interest payments could absorb tax revenue gains and undermine the Takakura cabinet's 21 trillion yen stimulus plan. The risk of carry trade unwinding has already been absorbed, limiting spillover effects on global equities.
Source report
Date: September 20, 2026 16:41:39 | Source: CFi.CN
CFi.CN News: Data shows that the Bank of Japan (BOJ) has raised its policy rate by 25 basis points to 1.25%, the highest level since 1995. Core CPI stands at 1.7% year-on-year, while spring wage negotiations (Shunto) have delivered wage increases exceeding 5% for the third consecutive year. Corporate goods prices and import prices have also risen sharply. The 10-year Japanese government bond (JGB) yield has broken above 3%, with the 30-year yield rising to 4.18%. Bond issuance has faced headwinds, as evidenced by declining bid-to-cover ratios.
Recent institutional research reports indicate that this rate hike is a necessary step to restore the credibility of yen monetary policy. It brings the policy rate into the nominal neutral range (1.1%–2.5%), alleviating criticism that the BOJ has been "behind the curve." The reports suggest that the dual rise in wages and prices provides a foundation for continued rate hikes, and that downward pressure on the yen has been brought under control for now.
According to the research, the key factor influencing future trends is the terminal rate, not the individual move. If the BOJ stops at 1.25%, fiscal pressure may ease. However, if the market expects multiple rate hikes before mid-2027, the surge in interest payments could erode tax revenue gains, threatening the Ishiba administration's ¥21 trillion stimulus package. The risk of a carry trade unwinding has already been absorbed, limiting the spillover impact on global equity markets.
Source: CFi.CN
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Bank of Japan raises rate to 1.25%, a 31-year high, as yen weakens on cautious outlook