[9/18 Rate Hike Decided] Policy Interest Rate to 1.25%! Why Did the Yen Weaken Despite the Hike? A Thorough Explanation of the Impact on Household Budgets and Investments for Moms

“I saw in the news that the Bank of Japan raised interest rates again, but how will it affect my life?”
“What does it mean that the yen is weakening even though they raised rates?”

On September 18, 2026, the Bank of Japan decided to raise its policy interest rate from 1.0% to 1.25%. This is the highest level in about 31 years, since 1995. Moreover, this decision was made at a rapid pace, just three months after the previous rate hike in June, clearly accelerating the pace of rate increases.

But strangely, even though they raised rates, the yen exchange rate actually shifted toward a weaker yen. “Rate hike equals a stronger yen,” so why did this happen? In this article, I will explain in simple terms for beginners what this rate hike entails, why the yen weakened, and how it will affect moms’ household budgets and investments.

First, the Conclusion | September 18, Policy Interest Rate to 1.25%. The Highest Level in 31 Years

Let’s first simplify the decision. At the Monetary Policy Meeting on September 18, 2026, the Bank of Japan decided to raise the policy interest rate by 0.25% to around 1.25%. The vote was 7 to 2. A level of 1.25% is the highest it has been in about 31 years, since April 1995.

What is noteworthy is the speed of this decision. Since ending negative interest rates in March 2024, the Bank of Japan has generally been raising rates at a pace of once every six months. However, this time, it was an additional rate hike just three months after the previous one in June. The interval between rate hikes has clearly shortened. The background to this is the risk of inflation rising due to high crude oil prices and a weak yen. If left unchecked, inflation could accelerate, so the Bank of Japan has stepped harder on the brakes.

The new interest rate will be applied from September 24, after the long weekend. The “speculation of an additional rate hike at the September meeting” that I mentioned in my previous article, “[September 2026 Latest] Savings Account Interest Rates Have Risen This Much,” has become a reality.

Why Did the Yen Weaken Despite the Rate Hike? 3 Reasons Even Beginners Can Understand

Now, the most mysterious part is here. The textbook theory is that “when a country raises interest rates, its currency is bought, leading to a stronger yen.” However, this time, immediately after the rate hike, the yen exchange rate actually shifted toward a weaker yen, falling to the 157 yen per dollar range at one point.

Why did this happen? There are three reasons.

Reason 1: The rate hike was “already priced in.”
The rate hike to 1.25% this time was expected by the market to be “almost certain” in advance. In the world of stocks and foreign exchange, even if what is expected actually happens, it doesn’t move much. In fact, it is common for things to move in the opposite direction after an event passes, which is called “selling on the news.” This was exactly that pattern, and the yen was sold due to the sense of relief that “the rate hike is done, and there probably won’t be another one for a while.”

Reason 2: Dissenting votes came from the “dovish” side.
Two members voted against the decision. Moreover, these two were opposing from the standpoint of “doves” who prefer monetary easing, arguing that “a rate hike is too early and should be kept on hold.” Seeing this, the market perceived that “there are people within the Bank of Japan who are cautious about rate hikes = they probably won’t rush into further rate hikes,” which led to a weaker yen.

Reason 3: The timing of the next rate hike was not indicated.
The statement this time did not include any specific wording about “when the next rate hike will be.” Because there was no strong message that the market was wary of, such as “further accelerating the pace of rate hikes,” it was perceived that “things will be calm for the time being,” which also led to yen selling.

In other words, the simple formula of “rate hike = stronger yen” does not always hold true. The market moves by anticipating not only “what actually happened” but also “what is likely to happen next,” which is why these seemingly strange reactions occur.

Impact on Moms’ Household Budgets 1 | Increased Burden for Housing Loans (Variable Interest Rates)

So, how will this affect our household budgets as moms? The first thing we are concerned about is housing loans.

According to estimates by Mizuho Research & Technologies, housing loan interest rates (variable type) are expected to rise by 0.25% due to this rate hike, reaching around 1.45%.

For moms who have taken out housing loans with variable interest rates, this means an increased burden. However, as explained in my previous article, “Bank of Japan Rate Hike Causes Housing Loans to Rise! What Variable-Rate Moms Should Do Right Now,” many banks have a “5-year rule” and a “125% rule,” so monthly repayments will not jump immediately. Nevertheless, in a phase where interest rates continue to rise, it is necessary to be aware that the burden will gradually increase. This is a good opportunity to check the details of your loan contract and see if there is room for refinancing.

Impact on Moms’ Household Budgets 2 | Deposit Interest Rates Will Rise Further

On the other hand, there is also good news. Deposit interest rates are also set to rise further due to the rate hike.

According to estimates by Mizuho Research & Technologies, the interest rate on time deposits (10-year) is expected to rise by 0.15% to approximately 2.13%.

Ordinary deposit rates at megabanks are also highly likely to be raised further from the current 0.4%. In particular, high-interest online banks such as Aozora Bank and SBI Shinsei Bank are likely to make their time deposit rates even more attractive. By keeping your emergency fund and money you will need in the near future in these high-interest accounts, you can steadily grow your savings without risk.

Mizuho Research & Technologies has calculated the impact of this rate hike on household finances from both sides—the ‘increased burden of mortgage payments’ and ‘increased interest income from deposits’—and analyzes that the overall impact will be a net gain of approximately 400 billion yen. In other words, looking at Japanese households as a whole, a rate hike is not necessarily all negative. However, this also involves a generational divide where ‘households with mortgages are at a disadvantage, while households with large savings are at an advantage.’

Impact on Mom’s Investments ③ | What will happen to All Country (eMAXIS Slim All Country) and S&P 500?

So, what about the impact on the All Country and S&P 500 funds you are accumulating in your new NISA? A rate hike affects investment trusts through two channels: ‘stock prices’ and ‘foreign exchange.’

First, the exchange rate channel. If the yen weakens after a rate hike as it did this time, the yen-denominated valuation of dollar-based All Country and S&P 500 funds will rise. Conversely, if the yen strengthens in the future, the valuation will decrease. Since the yen weakened this time, it worked in favor of moms who hold these assets in the short term.

Next, the stock price channel. Generally, a rate hike is considered a negative factor for stock prices because it increases borrowing costs for companies. However, this time, because the rate hike was already priced in, the Nikkei Stock Average actually rose. It expanded its gains after the rate hike announcement, climbing to the 65,000 yen level.

The important thing here is not to be swayed by such short-term price movements. For moms who are accumulating All Country or S&P 500 funds over the long term, there is no need to change your investment strategy based on a single rate hike. Rather, it is best to consider that both exchange rates and stock prices will inevitably fluctuate, and continuing to steadily follow the dollar-cost averaging method every month is the most rewarding approach.

What happens next? Outlook for additional rate hikes and points to note

I will answer the question, ‘So, will rate hikes continue from here?’

A survey conducted by Reuters in September indicates a view that the policy interest rate will reach 1.75% by the second quarter of 2027.

In other words, it is highly likely that the rate hike phase will continue. The neutral interest rate (the level that neither overheats nor cools the economy) estimated by the Bank of Japan in March was 1.1–2.5% in nominal terms, and this 1.25% has only just exceeded the lower bound. There is still room for further rate hikes.

What you should keep in mind as a mom is to plan your household finances on the premise that a ‘world with interest rates’ will continue. For mortgages, create a repayment plan that is manageable assuming interest rates will rise; for savings, choose high-interest accounts; and for investments, continue steadily with a long-term perspective. If you keep these three pillars in mind, you won’t have to panic even if rate hikes continue.

For moms unsure about how to judge the rate hike phase | Rely on reliable sources of information

That said, it is natural to be confused about the future of the market, wondering, ‘The yen weakened despite the rate hike, so how will it move from here?’ or ‘Should I buy more stocks?’ Market movements that don’t follow the textbook, like this one, are difficult even for professionals to interpret.

Honestly, I was confused at first too, thinking, ‘I thought a rate hike meant a stronger yen, so why did it weaken?’ The Bank of Japan’s policy, the reaction of the exchange rate, and the movement of stock prices—understanding all these complex relationships on your own is truly difficult for a busy mom.

That is why I rely on the market prediction notes by ‘Todai Parfait,’ who graduated from the University of Tokyo and became a multi-millionaire in his 20s. His market analysis, which covers everything from US stocks and foreign exchange to BOJ policy, has an astonishing accuracy rate and is super popular content with over 200,000 copies sold in total.

There is currently a campaign where you can read it for free for the first month in collaboration with a securities company, so please check it out before you decide on the impact of the rate hike👇

Summary | 3 conclusions for moms to grasp in the 1.25% policy rate era

Finally, I will summarize the three conclusions drawn from this rate hike.

Conclusion 1: Policy rate raised to 1.25%, the highest level in 31 years, with an accelerating pace of hikes.
This additional hike comes just three months after the previous one in June, shortening the interval. The goal is to curb inflation caused by high oil prices and a weak yen. The “world with interest rates” is becoming even more established.

Conclusion 2: The yen weakened despite the rate hike because the market moves based on “anticipation.”
The hike was already priced in, there were dissenting votes from the dovish side, and no timeline for the next hike was provided. These three factors led the market to believe that “further hikes are not urgent,” causing the yen to weaken. The market doesn’t always follow the textbook.

Conclusion 3: The right move for moms is to “check mortgage loans, use high-interest savings, and continue long-term investments.”
Review your mortgage assuming an increased burden, move savings to high-interest online banks, and continue investing calmly without being swayed by rate hikes. With these three pillars, you can navigate the era of ongoing rate hikes without panic.

Because we are in a “world with interest rates” where hikes continue, updating your household budget is essential. Let’s learn together how to grow money wisely, even for busy moms! 👩‍👧‍👦💰