Bank of Japan Releases Opinions Behind September Rate Hike to 1.25%

The Bank of Japan released the Summary of Opinions from its Monetary Policy Meeting on September 17 and 18, 2026 at 8:50 a.m. Japan Standard Time on Thursday, October 1, 2026, the release time set out in an embargo notice printed on the document. The summary records the views presented at the meeting, where the Policy Board decided by a 7-2 majority vote to encourage the uncollateralized overnight call rate to remain at around 1.25 percent, with the new guideline effective from September 24, 2026.

According to the September 18 policy statement, the Board decided by the same 7-2 margin to set the interest rate applied to the complementary deposit facility, the rate on current account balances held by financial institutions at the Bank excluding required reserve balances, at 1.25 percent, and the basic loan rate under the complementary lending facility at 1.5 percent, both effective September 24, 2026. By a unanimous vote, the Board also changed the Funds-Supplying Operations to Support Financing for Climate Change Responses to a floating loan rate with upper limits on the amount of loans.

Voting for the action were Ueda Kazuo, Himino Ryozo, Uchida Shinichi, Takata Hajime, Tamura Naoki, Koeda Junko, and Masu Kazuyuki. Asada Toichiro and Sato Ayano voted against it. The statement records that Asada dissented because, with the year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) below 2 percent recently, it could not necessarily be said that the economic situation was strong, and that Sato dissented because current economic and price developments did not appear to have substantially accelerated compared to before. Takata and Tamura, while voting for the action, each opposed the statement’s description of the price outlook: Takata considered that the level of the rate of increase in the CPI, including underlying CPI inflation, already had generally reached the price stability target, and Tamura considered that underlying CPI inflation already had been at a level generally consistent with the target.

In its published assessment, the statement said Japan’s economic activity and prices have been developing generally in line with the baseline scenario presented in the July 2026 Outlook for Economic Activity and Prices, with the year-on-year rate of increase in the CPI (all items less fresh food) moderately rising in the range of 1.5 to 2.0 percent and medium- to long-term inflation expectations continuing to rise. It projected the rate of increase in the CPI to accelerate to a level clearly above 2 percent from the second half of fiscal 2026, and stated that accommodative financial conditions are expected to be maintained after the change in the policy interest rate.

A footnote in the summary explains that each Policy Board member and government representative submits a written summary, under a set word limit, of the opinions she or he presented at the meeting, and that the Governor, who serves as chairman, edits the submissions. The published views appear as unattributed bullet points. The full minutes of the meeting are scheduled for release at 8:50 a.m. on Thursday, November 5, 2026.

Opinions on Economic Developments and Prices

One opinion held that Japan’s economy has recovered moderately, although some weakness has been seen in part due to the impact of the situation in the Middle East, and that the economy is expected to continue growing moderately, underpinned by the government’s various measures and an increase in global AI-related demand. Another attributed the somewhat weak figures for domestic demand in the April-June GDP statistics to technical factors regarding the treatment of the sale of patent rights abroad and the provision of free school lunches, judging that economic activity and prices have been developing generally in line with the July 2026 Outlook projections and that attention continues to be warranted on upward deviations in prices. A third countered that, although the real GDP growth rate for the April-June quarter was positive, the breakdown shows domestic demand was negative and external demand was positive only as a result of a decrease in imports reflecting supply-side constraints stemming from the Middle East situation, so it cannot be said that the economy is growing in a strong and sound manner. A fourth described “a significant regime shift in financial conditions surrounding Japan,” citing heightened upward pressure on prices, an accompanying rise in inflation expectations, and a shift in the global environment to a phase of policy interest rate hikes, adding that this shift has become increasingly evident over the past few months.

On prices, one opinion projected that underlying CPI inflation is likely to increase gradually and come to a level generally consistent with the 2 percent price stability target between the second half of fiscal 2026 and fiscal 2027. Another said underlying CPI inflation has been fairly close to 2 percent, with some indicators exceeding 2 percent and others falling below it, and argued the discussion should be premised on underlying CPI inflation being around 2 percent. A third said underlying CPI inflation has generally reached 2 percent, with developments in prices since the previous meeting further supporting that view. Other opinions noted that the year-on-year rates of increase in both the CPI (all items less fresh food) and the CPI (all items less fresh food and energy) have remained in the range of 1.5 to 2.0 percent recently, partly reflecting the effects of government measures; that rises in the prices of items such as packaging materials and food trays, together with the recent acceleration in distribution costs, are expected to facilitate firms’ pass-through of cost increases to selling prices; and that the pace of increase in services prices appears to have been more or less unchanged recently while private consumption has remained subdued.

On the Middle East, one opinion stated that concerns initially raised over a significant deterioration in economic activity have not materialized, partly due to the use of petroleum reserves and progress in securing alternative sources of supply, while cautioning that upside risks to prices continue to be high, reflecting factors such as higher import prices. Another said the outlook for prices should be considered with the possibility that crude oil prices could remain high.

Opinions on Monetary Policy

Multiple opinions judged it appropriate for the Bank to raise the policy interest rate and adjust the degree of monetary accommodation, citing economic and price developments largely on track, accommodative financial conditions, and warranted attention to upside risks to prices. One opinion noted that a hike at this meeting would be the first in the three months since June and that the interval between rate hikes would be shorter than before, because economic conditions have been more resilient than expected; the Bank’s list of 2026 policy statements records the previous change in the guideline for money market operations on June 16, 2026. Two opinions opposed a hike at this meeting: one considered it desirable to maintain the current policy interest rate given that the year-on-year rate of increase in the CPI has been below 2 percent and the recent economic situation cannot necessarily be described as strong, while the other judged it not appropriate to raise the rate because current economic and price developments did not appear to have substantially accelerated.

One opinion stated that, with the aim of monetary policy thus far having been to push underlying CPI inflation upward and inflation now getting closer to 2 percent, the perspective of stabilizing it at a level around 2 percent has become important, concluding that “there has been a shift in the phase of monetary policy.” Another said the Bank should demonstrate to the market its determination to prevent upward deviations in prices through a nimble response to overseas economic environments and to price developments, while giving consideration to the impact stemming from foreign exchange markets.

On the future path, one opinion held that if prices continue to develop in a manner consistent with the 2 percent target and financial conditions remain accommodative, it will be necessary to continue raising the policy interest rate, and that if signs of an upward deviation in prices are observed, the Bank will need to accelerate the pace of rate hikes. Another considered it desirable to bring the policy interest rate closer to the approximate goal relatively soon, to ensure room for nimble adjustment in either direction. A third said underlying CPI inflation is expected to reach 2 percent before long but does not seem to be accelerating at a speed that could lead the Bank to fall behind the curve, so there is no need to take hasty action, while adding that the Bank should conduct policy as appropriate to prevent excessive and persistent price increases.

Several opinions addressed the neutral interest rate. One said the neutral rate may deviate upward from prior estimates or from levels anticipated by the market, depending on developments overseas, and that rather than making a priori assumptions the Bank should examine the degree of monetary accommodation after each policy rate hike by observing the behavior of firms, households, and financial institutions. Another said that when deciding on future hikes it is important to keep in mind the estimated range of the neutral interest rate while continuing to act in a timely manner without becoming overly cautious, broadening the scope and improving the granularity of analysis. On financial conditions, one opinion reported that most firms say the impact of past rate hikes and near-term potential further hikes is limited, and that only a very few firms report they will refrain from fixed investment due to interest burdens. Another attributed continued accommodation in part to the easing effects of monetary accommodation to date being amplified through asset prices. A further opinion said communication with market participants needs to be conducted effectively to prevent one-sided monetary policy expectations from being factored into the market.

The Ministry of Finance representative stated that the government expects the Bank to make decisions at the meeting as appropriate regarding the proposed change in the policy interest rate, to explain its policy intention carefully to the market and other stakeholders, and to carefully examine factors such as the impact of the change on economic activity and prices. The Cabinet Office representative stated that the government expects the Bank to fulfill its accountability regarding the decisions at the meeting and to examine carefully the cumulative effects of past policy interest rate hikes, adding that it may be necessary for the Bank to take into consideration its estimates of the neutral interest rate and that proactive and appropriate action is important in the event of excessive fluctuations in economic activity and in the market.

The meeting ran from 14:00 to 15:59 on September 17 and from 9:00 to 11:47 on September 18. Nakayama Mitsuteru, Deputy Vice-Minister for Policy Planning and Coordination at the Ministry of Finance, and Tsutsumi Masahiko, Director-General for Economic and Fiscal Management at the Cabinet Office, attended on September 17; Nakatani Shinichi, State Minister of Finance, and Kiuchi Minoru, Minister of State for Economic and Fiscal Policy, attended on September 18. The Bank released its policy statement at 11:54 on September 18. According to the Bank’s 2026 meeting schedule, the next Monetary Policy Meeting is scheduled for October 29 and 30, 2026, accompanied by an Outlook for Economic Activity and Prices report, with its summary of opinions due on November 10, 2026 and its minutes on December 23, 2026.