Bank of Japan Raises Policy Rate to 1.25%, the Highest Level Since 1995, in a 7-2 Vote
Japan's central bank, the Bank of Japan (BOJ), raised the uncollateralized overnight call rate to 1.25% from 1% on Sept 18, 2026, concluding a two-day policy meeting and lifting borrowing costs to the highest level since 1995.
A 7-2 decision with two dissents
The rate increase was approved by seven votes to two, The Japan Times reported on Sept 18, 2026. Board members Ayano Sato and Toichiro Asada cast the dissenting votes, with Sato arguing against higher rates. Both are newcomers to the board, appointed under Prime Minister Sanae Takaichi, and their joint opposition gave the decision an unusually wide margin of internal disagreement for a step of this size.
The outcome pairs dovish dissents with a mildly hawkish statement, a combination the report describes as mixed signals about where the policy rate goes next.
The path to 1.25%: three steps in nine months
The September move extends a sequence of increases that began in December 2025 and makes 1.25% the highest policy rate level since 1995 — roughly a 31-year high.
Steps of the current cycle
- December 2025: the rate raised to 0.75%;
- June 2026: the rate raised to 1.0% by seven votes to one, with Asada dissenting;
- July 2026: the rate held at 1.0%;
- September 18, 2026: the rate raised to 1.25% by seven votes to two, with Sato and Asada dissenting.
Each step of the sequence moved the uncollateralized overnight call rate, the BOJ's policy rate, further above the levels maintained for most of the preceding three decades.
Mixed signals about the next move
The tone of the September meeting was deliberately two-sided. On one side of the ledger sit the two dovish dissents, including Sato's stated case against higher rates; on the other, a statement tilted mildly hawkish, consistent with a board that has now raised the rate three times since December 2025.
- Dovish signal: two dissenting votes against the hike, one of them an explicit argument against higher rates;
- Hawkish signal: a mildly hawkish statement accompanying the third increase of the cycle;
- Historical marker: 1.25% is the highest policy rate level since 1995.
Why the vote margin matters
With two votes cast against the increase, the September decision records the widest dissent of the cycle: the June 2026 hike to 1.0% passed 7-1, and the July 2026 meeting ended in a hold. The presence of two Takaichi-appointed newcomers among the dissenters also frames the internal debate the board will carry into its next meetings, as the rate now stands at a level unseen in about three decades.
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