Bank of Japan raises interest rates to a 31-year high of 1.25% as Iran war fans global inflation

From the Newshound archive · first published 19 September 2026.

The Bank of Japan has lifted its benchmark interest rate to 1.25% from 1%, a level not seen since 1995, joining the US Federal Reserve and European Central Bank in pursuing tighter monetary policy as oil prices above $100 a barrel — driven by disruption to the Strait of Hormuz — keep inflation elevated worldwide. The vote was 7-2, with board members Toichiro Asada and Ayano Sato opposed. Governor Kazuo Ueda signalled further hikes are likely, warning that underlying inflation risks overshooting the bank's 2% target as firms grow more aggressive in raising wages and prices.

The rate hike — Japan's sixth in two and a half years — marks a sharp acceleration, coming just three months after the previous rise rather than the usual six.

Markets reacted badly: the yen slipped around 1% against the dollar and is heading for its steepest weekly loss against the dollar in two years, at 2.6%.

Washington has openly pressured Tokyo to keep hiking, with the US-Japan rate gap threatening to weaken the yen further and push import costs — and inflation — even higher.