BOJ Hikes Rates to 31-Year High Amid Global Rate Cycle Divergence

The Bank of Japan (BOJ) made its third interest rate hike in less than two years, raising its benchmark rate to 1.25 percent, the highest level since 1995.

This move is significant as it marks the end of the cheapest era in Japanese financial history for mortgage holders and signals a faster normalization pace.

The decision was approved by a 7-2 margin at the BOJ's policy meeting on Thursday, with an effective date of September 24. Governor Kazuo Ueda stated that underlying inflation is 'quite close to 2 percent' and hinted at potential future hikes, including a possible 50-basis-point increment.

The hike itself was expected but was influenced by the US Treasury Secretary Scott Bessent's public comments, which were seen as pressure on the BOJ to raise rates faster. The dissenting votes from two board members, Toichiro Asada and Ayano Sato, were also a surprise and had an unexpected impact on currency markets.