Bank of Japan raises rate to 1.25%: what international residents should watch
by 
Babylon Radio
Listen nowThe Bank of Japan raised its policy rate to around 1.25% on 18 September 2026, the highest level in roughly three decades. For international residents in Japan, the immediate practical point is not that every mortgage, savings account or business loan changes overnight. Commercial banks set their own rates and timing. The decision does, however, raise the likelihood of changes to borrowing and deposit costs and adds another factor to watch when budgeting for property, relocation or business investment.
The Bank of Japan said it would encourage the uncollateralised overnight call rate to remain at around 1.25%. The change was announced after its September monetary policy meeting. Governor Kazuo Ueda said future moves would depend on inflation and economic conditions, rather than promising a fixed path for further increases.
What changed on 18 September?
Japan spent many years with ultra-low or negative interest rates, so a 1.25% policy rate represents a significant change in the financial environment even though it remains lower than rates in many other major economies. The Bank of Japan’s official monetary-policy release confirms the new guideline, while Reuters reported that the increase was 25 basis points and passed by a 7-2 vote.
The decision does not mean that a home loan priced at one level on Friday automatically resets to a new rate on Saturday. Floating-rate mortgage products have their own review dates, reference rates and repayment rules. Fixed-rate borrowers may see little or no immediate change to existing repayments, while people applying for a new loan can face different pricing depending on the lender and product.
What should mortgage holders and property buyers check?
If you have a mortgage in Japan, check whether it is fixed, floating or fixed for an introductory period. Then check the lender’s latest base or reference rate, the next rate-review date and whether the lender has rules that smooth changes in monthly repayments. Those details matter more to your next payment than the headline policy rate alone.
Prospective buyers should also avoid assuming that a higher central-bank rate automatically makes property a bad investment. The effect depends on purchase price, deposit, loan structure, rental assumptions, currency exposure and how long you plan to stay in Japan. For higher-income international families or investors using leverage, the cost of finance should now be stress-tested at more than one interest-rate scenario.
Babylon’s practical approach is simple: ask the lender for the current rate, the formula used to change it, the next review date and the repayment impact of a further increase. Do not rely on a headline estimate for your own loan.
What about savings and deposits?
Higher policy rates can eventually improve returns on some deposits, but banks do not all pass through central-bank changes in the same way or at the same speed. International residents with large cash balances should compare ordinary deposits, time deposits and any foreign-currency products carefully, including fees and exchange-rate risk.
If your income is paid from overseas, the yen matters as much as the interest rate. Reuters reported that the yen weakened after the decision despite the rate increase. Currency markets can react to expectations about future policy as well as to the decision itself, so one day’s move should not be treated as a forecast.
Why this matters for people moving to Japan
People planning a move to Japan often budget using rent, salary and exchange rates but overlook the wider interest-rate environment. Higher borrowing costs can affect landlords, property developers and businesses as well as individual borrowers. Over time, that can feed into housing supply, investment decisions and the cost of financing a new business.
For newcomers transferring a large amount of savings into yen, buying property soon after arrival or starting a company, it is worth separating three decisions: when to convert currency, how much to borrow and whether the borrowing rate is fixed or floating. They are related, but they are not the same decision.
Could rates rise again?
The Bank of Japan has not promised another increase on a particular date. Ueda said policy will depend on the outlook for inflation and the economy. Reuters reported that he also left open the possibility of larger or consecutive moves if conditions require them, while stressing the risk of over-tightening.
That is an important distinction for anyone making a financial decision. A possible future rate increase is not the same as a confirmed increase. The useful response is to test your budget against a range of borrowing costs rather than trying to predict the next policy meeting.
What international residents should do now
If you already live in Japan, check your mortgage or loan terms, your bank’s latest deposit-rate notice and any significant yen exposure in your household budget. If you are preparing to relocate, ask prospective banks or mortgage brokers for current pricing rather than relying on older guides or forum posts.
The Bank of Japan’s next decisions will matter, but so will the way individual lenders respond. For most households, the most useful information is still found in the terms of the actual product you use.
Primary source: Bank of Japan, Statements on Monetary Policy 2026.
Additional reporting: Reuters, 18 September 2026.
Last verified: 18 September 2026. This article is general information, not personalised financial advice.
Featured image: photo by Cullen Cedric via Unsplash.