Bank of Japan raises key policy rate to 0.75% to tame inflation, support the yen

TOKYO — The Bank of Japan raised its key policy rate to 0.75% on December 18, 2025, in a move aimed at taming inflation and supporting the yen. The decision signals a shift in Japan's long-running, ultra-loose monetary stance as the central bank seeks to address persistent price pressures and the currency’s weakness.

The rate increase represents a departure from the decades-long policy backdrop in which the BoJ pursued stimulation to sustain growth and combat deflationary tendencies. By setting the policy rate at 0.75%, the central bank indicated a readiness to tighten policy conditions as inflation pressures persist and the yen trades at levels that raise import costs for consumers and firms.

The bank said the move is intended to help tame inflation and support the yen. While the broader policy framework remains aimed at ensuring price stability, the decision underscores the central bank’s goal of aligning monetary conditions with Japan’s inflation trajectory and currency dynamics. Analysts emphasize that the timing reflects concerns about persistent price pressures and the need to curb speculative or destabilizing moves in the currency, though the bank has not provided detailed projections at the moment of the rate change.

In recent quarters, inflation in Japan has shown more persistence than in the years immediately following the pandemic, complicating the central bank’s objective of achieving stable, around-2% consumer-price growth. The yen has weakened against major currencies, adding import costs and reinforcing the logic for policy normalization. The BoJ’s decision to raise the policy rate to 0.75% aims to address these dual pressures by signaling a tightening stance while preserving confidence in financial markets and the broader economic recovery.

Markets and households alike will be watching closely for any accompanying guidance from the BoJ about its outlook for 2026. Forward-looking statements, forecasts for inflation, and signals about future policy moves will shape expectations for lending rates, borrowing costs, and business investment. The rate increase is expected to influence bank lending rates and could translate into higher borrowing costs for some borrowers, even as the aim remains to anchor prices and stabilize the currency over time.

The BoJ’s move also contributes to a global backdrop in which major central banks are recalibrating policy in response to renewed inflationary pressures and shifting currency markets. While the specifics of the BoJ’s plan for future normalization will hinge on incoming data, the decision places Japan in a more watchful posture regarding how quickly policy can be tightened withoutundermining growth.

As policymakers assess the trajectory of inflation, wages, and demand, the decision to raise the policy rate to 0.75% stands as a signal of the central bank’s willingness to adjust monetary settings in response to evolving economic conditions. The immediate impact on prices, loans, and markets will unfold in coming weeks as the Bank of Japan provides additional analysis and communicates its outlook for 2026.