BOJ Raises Rates to 1.25%: What Happens to Deposit Interest Rates?

On September 18, 2026, the Bank of Japan raised its policy interest rate (the target for the uncollateralized overnight call rate) from around 1.00% to around 1.25%.
The change takes effect on September 24, marking the highest level in approximately 31 years since 1995.

It is easy to assume that if the policy rate rises, yields on deposits and government bonds will automatically rise as well. However, in reality, the speed of reaction varies significantly depending on the product.

In this article, we compare ordinary deposits, time deposits, short-term financial products, and government bond yields side-by-side to clarify where it is most advantageous to keep your money.

🔳 Current Interest Rate Landscape

First, here is the big picture. Using the 1.25% policy rate as a benchmark, we have lined up the levels for major deposits, short-term products, and government bonds.

・The BOJ policy rate is 1.25% (effective 9/24)
・Ordinary deposits at megabanks remain at 0.50% even after the revision, which is only 40% of the policy rate・Short-term government bonds and 2-year government bonds have already priced in the rate hikes and expectations for further hikes, reaching
levels higher than deposits・
2-year government bonds (1.86%) significantly exceed megabank ordinary deposits (0.50%)

In other words, even among “safe assets,” there is an asymmetric state where deposits are not fully receiving the benefits of rate hikes, while short-term government bonds already carry interest rates close to actual market conditions.

🔳 How Have Commercial Bank Deposit Rates Moved?

We have summarized the revision schedule for ordinary deposits by financial institution.

・The three megabanks (Mitsubishi UFJ, Sumitomo Mitsui, Mizuho) are moving from 0.40% to 0.50% (effective Nov 2)
・Japan Post Bank is also moving from 0.40% to 0.50% (effective Nov 9)
・The 0.50% rate at the three megabanks is the highest in approximately 34 years, including the era of the predecessor banks before mergers
・Aozora Bank offers 1.20% on balances up to 1 million yen without conditions (effective Oct 1), a level a cut above other banks
・au Jibun Bank and Rakuten Bank also plan similar hikes of about 0.10 percentage points

The key point is that Aozora Bank’s 1.20% is almost the same level as 3-month TDBs (approx. 1.22%). Being able to earn this much interest on an ordinary deposit that allows free withdrawals is quite an exceptional position at present. However, since the portion exceeding 1 million yen drops to 0.75%, for larger amounts of capital, a combination of “Aozora for the first 1 million yen, and short-term government bonds for the rest” becomes a realistic strategy.

Regarding time deposits, while 1-year products at megabanks remain generally around 0.50%, some products at internet banks and emerging institutions are reaching the 1.0–1.4% range for 1-year terms and the 1.5–1.8% range for 5-year terms.

However, because time deposits involve lock-ins until maturity and the risk of early withdrawal penalties, when comparing them to ordinary deposits or short-term government bonds, you must view the interest rate difference as the “price paid for giving up liquidity”.

🔳 Actual Market Conditions for Short-Term Financial Products and Government Bonds

The rates that move closest to the policy rate are the interbank short-term market and government short-term securities. The uncollateralized overnight call rate (the interbank overnight rate, which is the BOJ’s actual operational target) was approximately 0.98% as of September 18, but it is expected to rise to around 1.25% from September 24 onwards.

Looking at OIS (a benchmark for future policy rates priced in by the market), the 1-month rate is about 1.23% and the 1-year rate is about 1.59%, which indicates that the market views the current rate as 1.25% with expectations for a further hike down the road. The 3-month TIBOR (interbank lending rate) is around 1.82%, which is on the higher end among these.

MRFs, which are standby funds at securities companies, are currently at around 0.80%–0.86%, which is a higher level than the revised mega-bank ordinary deposit rate (0.50%). However, because it takes time to replace the securities held within them, they tend to appear lower than market rates immediately after a rate hike, and the pattern of taking several weeks to months to catch up to market realities has been repeated in past rate-hike cycles.

Government bond yields are in a “normal yield curve” shape, where yields increase as the maturity lengthens.

・3-month TDB is about 1.22%, 6-month is about 1.35%
・1-year JGB/TDB is about 1.58%
・2-year JGB is about 1.86%
・10-year JGB is about 2.99%, 30-year JGB is about 4.08%
・Since the 10-year yield was under 1% two years ago (around September 2024), it has risen by +2 points in about two years

The 10-year bond yield level of around 3% is a benchmark for “long-term investment yields” that also spills over into discount rates for mortgages, insurance, and pensions.
Because the duration is too long for personal cash storage, it is practical to think in terms of a two-year or shorter horizon when comparing them with deposits and standby funds.

🔳 Categorizing Funds by Purpose and Placement

What becomes clear through comparison is that even for the same safe assets, the optimal place to keep them varies completely depending on how the funds will be used.

・Living expenses or money needed immediately: Mega-banks or Japan Post Bank (prioritizing ATM/direct debit convenience), or up to 1 million yen at Aozora Bank, etc., if you have the capacity
・Standby funds for several months to a year: Short-term government bonds (TDB), 1-year government bonds, or time deposits at online banks with favorable conditions
・Standby funds for securities trading: MRF for convenience, or switch to TDB for interest
・Safe assets that can be held for 2 years or more: Consider 2-year government bonds or individual government bonds (10-year floating rate)

It should not be overlooked that interest is subject to a 20.315% withholding tax in principle. When comparing after-tax returns, a 0.50% ordinary deposit is effectively about 0.40%, a 1.20% Aozora Bank account is about 0.96%, and a 1.86% 2-year government bond is about 1.48%, meaning the difference in take-home pay is smaller than the nominal interest rate difference. Even so, the gap between mega-bank ordinary deposits and short-term/2-year government bonds remains clear even after taxes.

🔳 Summary

The BOJ’s rate hike has pushed up the benchmark known as the policy rate, but there is a time lag before that benefit reaches deposit interest rates at the retail level. While mega-bank ordinary deposits remain at only about 40% of the policy rate even after revision, interest rates on short-term and 2-year government bonds have already risen to levels close to market realities.

Rather than assuming “interest rates are the same everywhere because they are safe assets,” deciding where to keep your money based on when you will use the funds will lead to differences in your take-home returns during this rate-hike cycle. Start by sorting your emergency funds, standby funds, and medium-term surplus funds, and confirm the appropriate place for each.

Interest rates move daily. In particular, the call rate is expected to rise to around 1.25% from September 24, and further revisions to deposit rates and TDB yields are expected to follow. Before actually depositing or purchasing, please be sure to check the latest published figures from each financial institution, the Ministry of Finance, and securities companies.

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※This article is for informational purposes only and does not recommend the buying or selling of any specific financial products. When investing or depositing, please check the latest interest rate information yourself and consult with a professional if necessary.