# Bank of Japan set to hike rates to 1.25% on inflation fears

> Central bank expected to raise rates Friday as surging energy costs and weak yen drive up prices across Japan.
- Title: Bank of Japan set to hike rates to 1.25% on inflation fears
- Summary: Central bank expected to raise rates Friday as surging energy costs and weak yen drive up prices across Japan. The Bank of Japan is likely raising rates to…
- Keywords: bank of japan, interest rates, inflation, yen, kazuo ueda, us federal reserve, european central bank, middle east crisis, oil prices, tokyo, sanae takaichi, news
- Source: Malay Mail — https://malaymail.com/news/money/2026/09/16/bank-of-japan-poised-to-raise-rates-to-125pc-amid-inflation-weak-yen/235412
- Published: 2026-09-16T14:23:24+00:00
- Read time: 2 min
- Topics: bank of japan, interest rates, inflation, yen, kazuo ueda, us federal reserve, european central bank, middle east crisis, oil prices, tokyo, sanae takaichi, news
## BoJ poised for rate hike
The Bank of Japan is expected to raise interest rates by 0.25 percentage points to 1.25% on Friday. This would be the highest level in over three decades.
## Energy prices fuel inflation
Surging oil prices from the Middle East crisis are driving up inflation. The conflict shows little sign of ending, keeping upward pressure on prices.
## Weak yen raises import costs
The cheap yen is making imported goods more expensive for Japanese consumers. Inflation accelerated in July toward the BoJ's two percent target.
## Markets already expect the move
BoJ members have signaled the rate increase themselves. Former currency chief Takehiko Nakao says a hike to 1.25% has already been priced in.

> In the face of advancing inflation, interest rates must be raised in a timely manner to contain it.
## More hikes likely ahead
Analysts expect inflation excluding fresh food and energy to rise toward 2.5% by early next year. Rates could hit two percent by mid-2027.
## Yen hit 40-year low
The yen fell to its weakest level against the dollar in 40 years in July. This prompted a historic joint intervention by the US and Japan.
## US pressure on Japan
Treasury Secretary Bessent expressed strong support for Japan's steps to address the yen's undervaluation. Markets believe the US demands faster rate hikes in exchange for intervention.

> The economic and political cost of disappointing markets and the US has become too big for the BoJ and government to ignore.
## Slow normalization blamed for weakness
After years of ultra-low rates until 2024, the BoJ's slow move toward normal interest rates is a major factor behind the weak yen. The last hike was in June.
## Fiscal policy worries investors
Prime Minister Sanae Takaichi's stimulus plans with higher public spending are concerning markets. Japan's 10-year bond yields climbed above three percent, the highest since 1996.
## Sales tax cut adds pressure
Japan approved a drastic reduction in the sales tax on food starting in April. This adds to market concerns about the government's fiscal approach.
## Key takeaway

The Bank of Japan is likely raising rates to 1.25% to combat inflation from high energy prices and support the weakening yen.