Bank of Japan Raises Main Short-Term Policy Rate to 1.0%, Signals More Hikes

The Bank of Japan raised its main short-term policy target by a quarter percentage point on Tuesday, setting the uncollateralized overnight call rate at around 1.0% from June 17 in a 7-1 vote, according to a BOJ statement dated June 16, 2026.

In its document, “Change in the Guideline for Money Market Operations,” the central bank said, “The Bank will encourage the uncollateralized overnight call rate to remain at around 1.0 percent.” It added: “The new guideline for money market operations will be effective from June 17, 2026.”

The move lifts the target from around 0.75%, the level set on April 28, and marks another step in the BOJ’s policy normalization after it ended negative interest rates in 2024. The uncollateralized overnight call rate is the BOJ’s main operating target for short-term money-market rates, so a higher setting can feed through to broader borrowing costs across the economy.

The BOJ also said the interest rate on its complementary deposit facility will be 1.0%, while the basic loan rate under its complementary lending facility will be 1.25%.

In explaining the decision, the BOJ said Japan’s economy “has recovered moderately,” although “some weakness has been seen in part, partly due to the impact of the situation in the Middle East.” The bank said consumer inflation excluding fresh food had recently been below its 2% goal, and in attached material described that measure as recently around 1.5%.

Even so, the BOJ indicated it sees firmer underlying price pressure building. It said underlying CPI inflation is approaching 2% and warned there is a risk that it could deviate upward above that level. That suggests policymakers are balancing still-moderate growth against inflation risks, including energy-related pressures linked to tensions in the Middle East.

Board member Asada Toichiro was the lone dissenter. The BOJ said: “Asada Toichiro dissented, considering that, regarding the impact of the situation in the Middle East, downside risks to production and employment were greater than upside risks to prices, and it was desirable for the Bank to maintain the guideline for money market operations.” The statement also listed BOJ Gov. Kazuo Ueda as absent from the vote.

The decision’s broader significance is that it extends the BOJ’s gradual retreat from the ultra-loose settings that defined Japanese monetary policy for years. While the central bank said financial conditions remain accommodative, it made clear that Tuesday’s increase may not be the last if inflation and the economy evolve as expected.

In its forward guidance, the BOJ said that “given that underlying CPI inflation has been approaching 2 percent and financial conditions have been accommodative, the Bank will continue to raise the policy interest rate and adjust the degree of monetary accommodation, in response to developments in economic activity and prices as well as financial conditions.”

That language signals the BOJ sees room to keep tightening policy, even as it acknowledges pockets of weakness in the economy.