BOJ set to raise interest rate to 1.25% next week

The Bank of Japan plans to raise its policy interest rate to 1.25%, the highest level in about 31 years, at its policy-setting meeting next week, informed sources said Friday.

The last time the BOJ policy interest rate stood at 1.25% was in April 1995.

With underlying inflation approaching the BOJ’s 2% target, the central bank will raise its policy rate at the meeting starting Thursday to respond to upside risks to prices.

While the BOJ views the domestic economy as solid, it also recognizes growing upside risks to prices due to higher oil prices, a weaker yen and rising demand related to artificial intelligence.

The BOJ believes financial conditions to be accommodative, with lending remaining on an upward trend even after the central bank raised the policy rate to around 1.0% in June. If the BOJ maintains its current interest rate level, there is a risk that prices will rise above the 2% target.

Although the BOJ has raised its policy rate roughly once every six months so far, the latest hike will come just three months after the June hike.

At a news conference Sept. 2 Japan time, after the end of a meeting of the Group of 20 finance ministers and central bank chiefs in Asheville, North Carolina, BOJ Gov. Kazuo Ueda said, “We’ll fully discuss (a rate increase) at every policy meeting, including the next one.”

U.S. Treasury Secretary Scott Bessent has repeatedly voiced expectations for an early interest rate hike by the BOJ to prevent excessive weakening of the yen.