BOJ Raises Rates to 1.25% in September, Hitting 31-Year High
nashnova research
The Bank of Japan is expected to hike its policy rate from 1% to 1.25% on September 18, the highest since 1994; the real suspense is not the hike itself but Governor Ueda's post-meeting tone — too hawkish risks rattling the bond market, too dovish could trigger another yen sell-off.
Why is this hike considered a done deal?
Reuters, citing people familiar with the matter, reports that a majority of BOJ board members favor a 25-basis-point hike, wanting first to assess how earlier rate increases have transmitted through financial conditions.
This is the BOJ's first hike in three months and another step in its ongoing exit from ultra-loose monetary policy — a regime of near-zero rates held for years to stimulate the economy.
The move is synchronized with ECB and Fed tightening. This means → major central banks are collectively responding to persistent inflation; Japan is no longer the outlier.
Ueda's dilemma — why could any message backfire?
Markets have already fully priced in the hike. The real variable is the wording at the post-meeting press conference.
Sumitomo Mitsui Trust senior strategist Katsutoshi Inadome flags two opposite readings of a hawkish signal: one camp says it would push bond yields down (proving the BOJ is not behind the inflation curve); the other says it would push yields up (as markets reprice a higher terminal rate).
In plain terms = whether Ueda leans hawkish or dovish, there are side effects — dovish risks a yen sell-off that drives up import costs; hawkish risks shaking a JGB market already near 30-year-high yields. Inadome's conclusion: "The BOJ's best strategy is to stay as vague as possible."
Why does fiscal expansion make the BOJ's job harder?
Prime Minister Takaichi Sanae's expansionary fiscal policy adds another layer of complexity to the BOJ's tightening calculus.
IMF Managing Director Kristalina Georgieva warned last week that large-scale government spending is challenging central banks — high debt and fiscal-dominance risks are pushing inflation expectations higher.
This reflects a deeper tension: the government is spending to stimulate the economy while the central bank is raising rates to cool it — two forces pulling in opposite directions.
Where does the rate-hike path end?
A Reuters poll shows analysts expect rates to reach 1.5% by end-March next year and 1.75% by Q2 2027; most respondents see a terminal rate of at least 1.75%.
At 1.25%, the rate already sits inside the BOJ's own estimate of the nominal neutral rate — the level that neither stimulates nor restrains the economy — which ranges from 1.1% to 2.5%. Hawkish board member Naoki Tamura puts the neutral rate around 2%.
This means → the BOJ itself has no preset endpoint. Ueda has said the ultimate level depends on economic and price conditions — making this the core variable markets will reprice after the press conference.
Is there any dissent inside the board?
Board member Toyoaki Nakamura (Asada Toichiro), who voted against the rate hike at the June meeting, may dissent again this time.
Insiders cite an internal view: "Delaying necessary hikes has side effects," but the pace will depend on economic, price, and financial conditions at the time.
In plain terms = the internal debate is not about *whether* to hike but *how fast* — the same question the market is wrestling with.
市场有风险，内容仅供研究参考，不构成投资建议。