Japan raises interest rate to new 31-year high to curb rising prices

Japan raises interest rate to new 31-year high to curb rising prices. 1%ByPeter HoskinsBusiness reporterPublished18 September 2026, 03:56 BSTUpdated 3 hours agoJapan's central bank has raised its main interest rate to a fresh 31-year high as it continues to move away from decades of ultra-low borrowing costs and as the country faces increasing economic pressures.

What happened

While Japan's inflation rate is not high by international standards, rising prices are a relatively new development in the economy. Greg Baker | Afp | Getty ImagesJapanese markets reacted in a seemingly counterintuitive fashion on Friday after the country's central bank hiked benchmark interest rates to their highest in 31 years. ByMichael RaceBusiness reporter, Reporting fromWashington DCPublished16 September 2026Updated 17 September 2026US interest rates have been raised for the first time in more than three years and could be increased further in a bid to slow rising prices.

Related topicsCost of Living US Federal ReserveInflationUS economyMore on this storyUS borrowing costs hit highest level since 2007Published2 days agoInterest rates could rise again across the world – here's why Published6 days agoUS prices remain high as fuel costs squeeze household budgetsPublished6 days ago Central banks around the world have hiked rates as high energy prices are pushing up inflation. It comes as major central banks around the world are hiking rates as higher energy prices caused by the Iran war are helping to push up inflation.

On Wednesday, the US Federal Reserve raised its benchmark interest rate for the first time in over three years, while the European Central Bank also increased its borrowing costs earlier this month.

The wider picture

Japan is facing several economic challenges including a persistently weak yen, rising prices and a shrinking workforce. "If [the yen] remains weak despite higher rates, the resulting inflation pressure could force the BOJ to tighten faster than markets or Japan's government would like," Akoner said. Other major central banks have increased rates to counteract higher prices. He said that for interest rates to come down there would need to be "an end of conflict in the Middle East. . . and energy prices coming really back to where they were before this conflict began".

The average two-year fixed residential mortgage rate is at its highest since 11 May, at 5. Earlier in the year they had hoped that interest rates might be falling at this point. This has contributed to higher interest rates – or yields – on bonds, making it more expensive for the government to borrow money. Treasury Secretary Scott Bessent had stressed on the need for higher BOJ rates in his meeting with Japanese Finance Minister Satsuki Katayama in May.

What has been reported

But it also acknowledged that growth was likely to decelerate due to high oil prices stemming from the Middle East conflict. Higher interest rates make borrowing more expensive for people wanting to secure loans, mortgages, and credit cards, but can lead to better returns on savings. Many US homeowners have 30-year and 15-year fixed-rate mortgages, and changes to interest rates will not impact their monthly repayments. Watch: How will higher interest rates impact US consumers?

Image source, Anadolu via Getty ImagesImage caption, The Bank of Japan has been raising the rate since 2024, when it stood at minus 0. In a widely expected move on Friday, the Bank of Japan (BOJ) increased the rate from 1% to 1. It has now hiked rates six times in the last two and a half years. When a central bank raises rates, known as tightening monetary policy, the country's currency usually becomes stronger as it makes the it more attractive to traders.

What happens next

Global oil and gas prices have risen this year as the Iran war caused major disruptions to shipments through the key Strait of Hormuz shipping route. Bessent has also been ramping up pressure on the BOJ to raise interest rates to help support the yen, calling on its Governor Kazuo Ueda to "do the right thing". Tomohiro Ohsumi | Getty Images News | Getty ImagesThe Bank of Japan has raised its policy rate by 25 basis points to 1.

The hike comes amid rising inflation in the country and a historically weak yen, with the latest inflation headline rate for August at 1. 45%, while the benchmark 10-year Japanese government bond yield fell 4. S. has been vocal about Japan continuing its rate-hiking cycle, pressuring Takaichi's preference for an easy monetary policy and an expansionary fiscal policy. Image source, Getty ImagesByDearbail Jordan, Business reporter and Kevin Peachey, Cost of living correspondentPublished17 September 2026The Bank of England has held interest rates at their current rate of 3.

The report has been compiled by The Daily Waves using information reported across bbc.co.uk, cnbc.com, theguardian.com. Details are presented according to the information available at the time of publication and may change as authorities, organisers or other relevant parties provide updates.