The Bank of Japan has raised its key policy rate to around 0.75 percent. This marks the highest level since September 1995. For a country known for keeping rates near zero this represents a significant shift. The decision came after the January 2026 Monetary Policy Meeting. All members voted in favor of the increase. There were no opposing votes and no signs of uncertainty among policymakers. This move signals a clear change in direction for Japanese monetary policy. The BOJ has maintained extremely low interest rates for decades as part of its strategy to combat deflation and stimulate economic growth.
Japan’s Interest Rate Moves to 0.75% — Why the BOJ Is Acting Now
Japan did not suddenly decide to raise interest rates overnight. This shift reflects growing confidence within the Bank of Japan (BOJ) that the economy can function without emergency-level monetary support. Policymakers indicated that if economic growth and inflation continue on their current path, additional rate hikes may follow. This signals a major departure from decades of ultra-loose monetary policy. At the same time, the BOJ emphasized that financial conditions remain accommodative, meaning borrowing costs are still relatively low—just no longer at near-zero levels.
| Category | Updated Information |
|---|---|
| Current Policy Rate | Approximately 0.75% |
| Earlier Rate Level | Close to 0.5% |
| Record Level | Highest interest rate since September 1995 |
| Voting Outcome | Decision approved unanimously |
| Bank of Japan Approach | Careful and gradual policy tightening while maintaining economic support |
Inflation Near the 2% Target Is Changing Policy Thinking
For years, Japan’s biggest economic challenge was persistently low inflation. That picture is now shifting. The BOJ has expressed increased confidence that core inflation will align with its 2% price stability target, particularly in the latter half of its forecast period. A key driver behind this change is that companies are increasingly passing higher wage costs on to consumers. This sustained pricing power is something Japan has struggled to achieve consistently in the past.
Wage Growth Is the Foundation of Sustainable Inflation
Wage growth has become the most important signal behind the BOJ’s decision. Policymakers believe firms will continue to raise wages steadily after the strong increases seen this year. This matters because inflation is only sustainable when supported by income growth. Without rising wages, price increases tend to fade quickly. The BOJ also sees a low risk of wage momentum weakening, giving it greater confidence to tighten policy gradually rather than abruptly.
Impact on Singapore and Asian Financial Markets
For investors across Asia, this move should be monitored calmly rather than overreacted to. A stronger Japanese yen could influence Singapore investors with exposure to Japanese equities or ETFs. Regional currencies may also experience shifts, and global liquidity changes could affect crypto markets. Japan has long been a major source of cheap capital, and as that supply tightens, short-term volatility across Asia-Pacific risk assets is possible.
Global Risks Remain but Are Less Pressing
The BOJ also addressed global uncertainties, including trade policy and external economic risks. While challenges remain, the Bank noted that risks—particularly those linked to the US economy and trade tensions—have eased compared to earlier periods. This allows Japan to focus more on domestic economic conditions instead of constantly shielding itself from external shocks.
Should Retail Investors Be Concerned?
For Singapore retail investors, this development is more about awareness than alarm. The BOJ’s approach represents a slow and cautious exit from ultra-loose policy, not an aggressive tightening cycle. While it marks the end of a long-standing era, adjustments are expected to be gradual. Investors holding yen-related assets, Asian funds, or crypto should be prepared for increased market movement, but there is no immediate reason to panic.
