The Bank of Japan raised its policy rate to 1.25% on September 18, the highest level since 1995, after months of pressure from US Treasury Secretary Scott Bessent to tighten monetary policy. Governor Kazuo Ueda signaled that even larger, 50 basis point hikes could follow, adding a new variable to global rate expectations.
The Bank of Japan pushed its policy rate to 1.25% in a 7-2 vote on September 18, the highest level in over three decades. The 25 basis point move marks the sixth hike of the current tightening cycle and did not happen in isolation.
Bessent's pressure on Tokyo
US Treasury Secretary Scott Bessent has pushed Tokyo toward tighter policy since at least May 2026, when he held private meetings with Japanese officials over the weak yen and the legacy of Abenomics-era stimulus. He escalated that pressure publicly at the G20 gathering in late August, calling on Japan to stabilize its currency and rein in fiscal excess.
The September move follows a hike to 1.00% in June. Between those two decisions, Japanese and US authorities coordinated a joint currency intervention in late July and early August to support the yen.
A split board, but a clear direction
Two board members, Toichiro Asada and Ayano Sato, dissented, citing concerns over economic growth. Both were appointed by Prime Minister Sanae Takaichi, whose base has historically favored accommodative policy. Still, the three-month gap between June and September suggests the BOJ is moving deliberately rather than aggressively.
Ueda went further than the vote itself, noting that 50 basis point increases — double the size of the latest move — remain possible if conditions warrant it. Rising energy costs, aggravated by the ongoing conflict in Iran, have kept price pressures elevated, reversing years spent trying to generate inflation under the negative-rate, yield-curve-control framework of the Abenomics era, which the BOJ is now dismantling.
What tighter policy means for the yen
Higher Japanese rates narrow the gap between yen and dollar yields, making yen assets relatively more attractive and making carry trades less profitable. Unwinding those positions caused significant volatility in August 2024, the last time the BOJ surprised markets. Japanese government bonds face the opposite pressure: higher policy rates push yields up and prices down, a weight on the large JGB holdings sitting on domestic banks' and insurers' balance sheets.
Source: Crypto Briefing
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