Bank of Japan raises rates to the highest level in 31 years and the yen falls

Bank of Japan raises rates to the highest level in 31 years and the yen falls

The Bank of Japan, the country's central bank, raised its interest rate on September 18, 2026. The interest rate is the price of money: what it costs to borrow. It went up 0.25 points, to 1.25%, the highest level in 31 years.

The measure passed by 7 votes to 2. Board members Asada Toichiro and Sato Ayano voted against it: for them, inflation, the general rise in prices, did not yet justify the increase.

The new rates will take effect on September 24, 2026. The bank said it will keep raising the rate slowly because underlying inflation is moving closer to its 2% target.

The United States also raised its rate

Two days earlier, on September 16, the Federal Reserve raised its rate by 0.25 points, to a range of 3.75% to 4.00%. The gap between the two rates is about 2.6 points.

Even so, the yen weakened. Several media outlets reported its lowest level in two weeks, around 156 to 157 yen per dollar.

The yen had fallen before

The yen reached 164 per dollar, its worst level in 40 years. On July 31, 2026, the United States and Japan bought yen together, the first time since 1998, and pushed it to 157 per dollar.

Inside Japan there is a deeper fight: the central bank wants higher rates to slow the fall of the yen and inflation, while the government of Sanae Takaichi prefers low rates for its spending.

Profits and costs for companies

According to the Japanese agency Jiji Press, every yen that falls against the dollar adds 50 billion yen, about 276 million euros, to the profit of a company like Toyota.

But companies also pay more dollars for steel, components, freight and insurance. For families, more than 70% of mortgages have variable rates, reviewed every six months.

What analysts expect

The research institute NLI expects two increases of 0.25 points in 2027, taking the rate to 1.75%. Former Bank of Japan board member Sayuri Shirai expects increases in December 2026 and March 2027.

Sources: Bank of Japan (official statement), El País (Spain), CNN Brasil (Brazil) and UPI (United States). September 23, 2026.