Bank of Japan raises overnight call rate to 1.25 per cent

The quarter-point increase follows a June hike. Governor Kazuo Ueda did not rule out further increases and said the bank plans to consult other central banks on their rate plans.

The Bank of Japan raised its overnight call rate to 1.25 per cent from 1 per cent, a rise of 25 basis points. Governor Kazuo Ueda said the bank did not rule out any policy options for further rate increases.

The move follows a hike in June 2026, when the rate rose to around 1 per cent. At its July 31 meeting, the bank had held rates at 1 per cent in an 8-1 vote, with board member Hajime Takata pushing for a move to 1.25 per cent at that time, according to CNBC. Thursday's decision comes three months after the June increase, according to FXStreet, which called it the central bank's most tightly spaced tightening in years amid accelerating core inflation.

Money markets had been pricing in roughly 90 basis points of cumulative hikes over the next 12 months ahead of the decision, FXStreet reported. Currency strategists including Derek Halpenny at MUFG had warned that cautious signalling from Ueda could trigger a yen sell-off, FXStreet reported. Thursday's meeting did not include a quarterly Outlook Report, which accompanies four of the bank's eight annual policy meetings, according to Phemex.

Ueda said the bank plans to consult other central banks about their own rate hike intentions. He said careful analysis is essential, but that this does not mean the bank should move slowly.

The increase itself lines up with what markets had already priced in through recent yen strength and bond yield moves, leaving little room for a fresh tightening surprise. Prime Minister Takaichi has laid out growth-focused fiscal plans since a cabinet reshuffle, calling for faster policy action and a cycle in which higher tax revenue feeds growth. With the rate move itself unsurprising and no fixed limit set on further hikes, what the Bank of Japan says about the pace and flexibility of future increases now carries more weight for markets than Thursday's decision. Ueda's stated focus on stabilising inflation rather than managing the currency adds to that weight.