The Bank of Japan Raised Its Policy Rate to 1.25% on a 7-2 Vote
The Bank of Japan lifted its overnight call rate target to around 1.25% from around 1.0% on 18 September. Two of the nine board members voted against.
The Bank of Japan raised its policy rate on 18 September 2026, lifting the guideline for the uncollateralized overnight call rate to around 1.25% from around 1.0%. The decision passed by seven votes to two and takes effect on 24 September. In a housing market where most mortgage debt is variable-rate and priced off the short end of the curve, the quarter point itself matters less than the argument the two dissenting members were having about it.
Two members voted against, and both cited the same number
ASADA Toichiro voted to maintain the previous guideline, arguing that with the rate of increase in the consumer price index excluding fresh food running below 2 percent recently, it could not necessarily be said that the economic situation was strong. SATO Ayano also opposed, on the grounds that current economic and price developments did not appear to have substantially accelerated compared with before, and that in that context it was not appropriate to raise the policy rate at this time.
The Bank's own description of inflation sits between the two positions. The statement says the year-on-year rate of increase in the consumer price index excluding fresh food has been moderately rising as upward pressure on prices in business-to-business transactions has started to spill over into consumer prices. That is inflation arriving through the supply chain rather than through wages or household demand. Seven members treated it as sufficient grounds to move. Two did not.
What the Bank said about the economy
The statement describes Japan's economy as having recovered moderately, although some weakness has been seen in part, partly due to the impact of the situation in the Middle East. The Board named three things it is watching: the situation in the Middle East, the expansion in AI-related demand, and developments in foreign exchange rates.
The third has the most direct line to property. Japanese variable-rate mortgages are priced off the short-term prime rate, which banks set with reference to the policy rate, so a move at the overnight call rate reaches household borrowing faster and more completely than a move further out on the curve. Fixed-rate products priced off longer maturities respond more slowly. A 25 basis point step is small against a loan that runs 35 years; a sequence of them is not.
A decade of Japanese gains that the currency took back
Our Japan row prices the national market at USD 3,307 per square metre as of the 14 September 2026 snapshot. That figure is derived rather than published. The Japan Housing Finance Agency's FY2025 Flat 35 user survey reports an average purchase amount of JPY 36,017,000 and an average floor area of 70.7 square metres for used condominiums nationwide, and we divide one by the other. These are transacted amounts declared in mortgage applications, not asking prices. We mark the row Medium confidence precisely because the ratio is our arithmetic and not the agency's.
Over ten years that market is up 35.0% in yen and down 1.9% in dollars. A Japanese owner holds a decade of gains. A dollar-denominated buyer holds none. The exchange rate the Board listed as a risk is the whole of the difference.
We publish no rental yield for Japan, and the reason is recorded in the row rather than hidden behind an empty cell. No Japanese publisher issues a national residential rent that can be paired with a national price: the private indices reach the three metropolitan regions or a list of major cities, and the housing market survey run by the transport ministry covers private renters only in the three major metropolitan areas. Pairing a national price with a metropolitan rent would produce a yield, and that yield would not describe a real property. Our bubble score for Japan is 67, in the elevated band, and round-trip transaction costs run 10.9%.
Sources: Bank of Japan, Change in the Guideline for Money Market Operations, 18 September 2026 https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2026/k260918a.pdf; Bank of Japan, reference note to the September 2026 decision https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2026/k260918b.pdf; Bank of Japan, amendment to the Complementary Deposit Facility terms https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2026/mpr260918b.pdf