- Decision
- Raise
- Rate change
- 25 bps
- uncollateralized overnight call rate
- 1.25%
The Bank of Japan raised its uncollateralized overnight call rate target by 25 basis points to around 1.25% in September by a 7-2 vote, citing an economy and prices developing broadly in line with its baseline scenario, underlying inflation approaching its 2% target and a risk of an upward deviation. Over the past year, it held the target at 0.5% through October 2025, raised it by 25 basis points to 0.75% in December and by another 25 basis points to 1.0% in June 2026. From September 24, the complementary deposit facility rate will be 1.25% and the basic loan rate 1.5%, while climate-response funding will move to a floating loan rate with lending limits. Japan’s economy has recovered moderately despite the Middle East situation, supported by stronger employment and income, while producer-price pressures have begun spilling into consumer prices and medium- to long-term inflation expectations have continued rising. Financial conditions remain accommodative and are expected to continue supporting activity. Key risks include the Middle East situation, expanding global artificial intelligence-related demand and foreign exchange developments. The Bank of Japan said it will continue raising the policy rate and adjusting accommodation in response to economic activity, prices and financial conditions, while assessing the timing and pace against its baseline and outlook risks.
Rate evolution
From June 2025 to April 2026, the Bank of Japan kept the uncollateralized overnight call rate at 0.5 percent until December, then raised it to 0.75 percent and held it there amid a recovery marked by rising business investment and resilient consumption under accommodative financial conditions, while consumer price index (CPI) inflation was lifted by wage pass-through, import-price effects and food prices that the Bank expected to fade, leaving underlying CPI inflation to rise gradually toward the 2 percent target. Uncertainty over trade and other policies abroad, initially described as extreme, had eased by December as confidence grew that wage and price increases would persist and bring underlying inflation into line with target, and in March and April 2026, as CPI inflation eased to around 2 percent, the Bank said it would continue raising the policy rate if the January Outlook path was realized, adding Middle East tensions, crude oil and firms’ wage- and price-setting behavior to key risks as April’s 6-3 vote showed greater concern that price risks were skewing upward.
On June 16, the Bank raised the uncollateralized overnight call rate to around 1.0 percent by a 7-1 majority vote as the economy recovered moderately, the risk of a significant slowdown decreased and financial conditions remained accommodative, while flagging upside risks to underlying CPI inflation from fast crude oil pass-through in business-to-business transactions and rising medium- to long-term inflation expectations. On July 31, it held the rate at around 1.0 percent by an 8-1 vote, noting that CPI inflation was around 1.5 percent due partly to government energy measures but was likely to accelerate clearly above 2 percent from the second half of fiscal 2026 as wage increases fed into selling prices and crude oil, semiconductor prices, global artificial intelligence-related demand and yen depreciation pushed up prices, and saying that, with CPI risks skewed upward, it would continue raising the policy rate while assessing economic activity, prices and financial conditions, while the dissenting member proposed raising the rate to around 1.25 percent.
The Bank decided by a 7-2 vote on September 18 to raise the uncollateralized overnight call rate to around 1.25 percent effective September 24, judging that economic activity and prices were developing generally in line with the baseline scenario as the economy recovered moderately despite the Middle East situation and underlying CPI inflation approached 2 percent. With a high year-on-year rise in the producer price index beginning to spill into consumer prices, medium- to long-term inflation expectations continuing to rise and financial conditions remaining accommodative, the Bank warned that underlying CPI inflation could move above the 2 percent target amid risks from the Middle East situation, expanding artificial intelligence-related demand and foreign exchange rates, and said it would continue raising the policy rate while assessing the likelihood of realizing the baseline scenario and risks to the outlook when determining the timing and pace of adjustment.