What is the Bank of Japan's interest rate hike? If loan interest rates rise by 0.25%, the interest on a 30 million yen loan will increase by 75,000 yen per year

On September 18, 2026, the Bank of Japan raised its short-term interest rate target from around 1.0% to around 1.25%. This is the second time this year, following the hike in June, and was decided by a majority vote of 7 to 2 by the nine members of the Policy Board. What is the “policy interest rate” we hear about in the news, and who decides it and when? Based on documents published by the Bank of Japan, we will examine this in order. We will also look at examples of calculations to see what happens to deposits, loans, and FX swap points when rates rise.

The figures in this article were verified using documents published by the Bank of Japan on October 11, 2026. The interest amounts are examples calculated within this article. They are not intended to forecast future interest rates.

The Bank of Japan is the “bank of banks” that does not accept individual deposits

The Bank of Japan is Japan’s central bank. Its major roles are to issue banknotes and to stabilize prices.

Its role is different from the ordinary banks where we deposit our money. Ordinary banks accept deposits from us and companies and lend them to other people and companies. The Bank of Japan does not accept deposits from individuals. The entities that deposit money with the Bank of Japan are mainly financial institutions such as banks. For this reason, it is sometimes called the “bank of banks.”

The policy interest rate is the interest rate for overnight lending between banks

The policy interest rate is the interest rate for which the Bank of Japan sets a target. Currently, this corresponds to the “uncollateralized overnight call rate.”

The name is complicated, but the content is as follows:

• The interest rate when banks lend and borrow money to each other for just one day without collateral

• Uncollateralized means there is no collateral, and overnight means it is repaid the next day

Banks lend and borrow money with other banks over short periods to match their daily payments. The Bank of Japan encourages this interest rate to move at the target level by adjusting the amount of money in the market. The target decided on September 18 is around 1.25%.

A 0.25% difference means a daily interest difference of about 685 yen on 100 million yen

Since interest rates are annual percentages, the daily portion is divided by 365 days.

• At around 1.25%: 100 million yen × 1.25% ÷ 365 days, which is about 3,425 yen

• At around 1.0%: 100 million yen × 1.0% ÷ 365 days, which is about 2,740 yen

A 0.25% difference results in a difference of about 685 yen per day. The larger the amount borrowed and the longer the borrowing period, the greater this difference becomes.

The reason the one-day interest rate makes the news is that the cost for banks to raise funds is affected by this short-term interest rate. In general, it is believed that when this interest rate rises, other interest rates, such as those for deposits and loans, are also likely to rise.

It is decided by the nine members of the Policy Board, and the final decision is by majority vote

The Policy Board consists of nine members in total: one Governor, two Deputy Governors, and six Executive Directors. It is the highest decision-making body within the Bank of Japan.

The nine members discuss matters at a meeting called the Monetary Policy Meeting, and the final decision is made by majority vote. The decision on September 18 was 7 in favor and 2 against. It is not necessarily the case that everyone has the same opinion, and the fact that there were dissenting votes is also made public.

Meetings are held 8 times a year for 2 days each, with the next ones on October 29 and 30

The Monetary Policy Meeting is held 8 times a year, with each meeting lasting 2 days. In 2026, they will be in January, March, April, June, July, September, October, and December. The decisions made are announced on the second day of the meeting.

The documents released after the meeting are as follows:

• Second day of the meeting: Press conference by the Governor

• Approximately one to two weeks after the meeting: Main opinions expressed at the meeting

• After the next meeting: Summary of minutes outlining the content of the discussions

• Meetings in January, April, July, and October: Outlook Report summarizing the outlook for the economy and prices

The next meetings are on October 29 and 30, and the decisions made are scheduled to be announced on October 30.

The policy interest rate target rose by 0.25% each in June and September of this year

The Bank of Japan aims for a state where prices rise stably by 2% each year. In the September document, it explains that the rate of price increase, excluding temporary factors, is approaching 2%. Based on this, it decided to adjust the degree of monetary easing, in other words, to raise interest rates slightly.

A 2% rise in prices means that something that could be bought for 1,000 yen this year will cost 1,020 yen a year later. If this continues for 10 years, the 1,000 yen item will cost approximately 1,219 yen. Generally, it is thought that when interest rates rise, the movement of borrowing and spending money settles down, which works to suppress the rate of price increases. If they are raised too much, it cools the economy, and if they are not raised enough, prices rise too much. Finding the balance between these is the role of the Monetary Policy Meeting.

When the policy interest rate rises, it can affect deposits, loans, and swap points

When the policy interest rate rises, it can also affect our money. We have simply calculated the annual impact if deposit and loan interest rates were to rise by 0.25%.

• Deposits: If the interest rate on deposits rises by 0.25%, the interest on 1 million yen deposited for one year will increase by 2,500 yen (taxes are not included)

• Loans: If you have a 30 million yen loan and the interest rate rises by 0.25%, the annual interest will increase by 75,000 yen. That is approximately 6,250 yen per month

• FX swap points (money received or paid based on the interest rate difference between two currencies): When the yen interest rate rises and the gap with foreign interest rates narrows, the amount received tends to decrease (when buying and holding foreign currency).

Assuming a foreign interest rate of 4%, if the yen interest rate is 1.0%, the difference narrows to 3.0%, and if it is 1.25%, it narrows to 2.75%. However, the actual swap point amount is determined by each FX company and changes daily. Savings, loans, and swap points do not change immediately by the same amount as the policy interest rate.

Three things to look for when you hear “Bank of Japan rate hike” in the news

• The new target figure (currently around 1.25%)

• The number of votes for and against (the more opposition, the more divided the opinion)

• The date of the next meeting (the next ones are October 29th and 30th)

Things to be careful about

• The policy interest rate is not the same as the interest rate for savings or loans. It is the interest rate for overnight lending and borrowing between banks.

• Future policy interest rates will be decided at each meeting. This article does not predict future interest rates.

• The figures in this article were verified using Bank of Japan public documents on October 11, 2026.

In the video, the same content is followed step-by-step with diagrams.

https://www.youtube.com/watch?v=6p5pJ-AbPFw

I record the FX swap points (the amount added daily while holding a currency) for 10 companies every business day. The amounts for each currency pair are posted here (free, no membership registration required).

https://swaabi-lab.com/pair/?utm_source=note&utm_medium=social&utm_campaign=note55

The figures in this article are examples of verification and calculation based on public documents and do not recommend any specific financial product or transaction. Actual interest rates and amounts received or paid vary by product and time. This does not guarantee future interest rates. Please make financial decisions at your own responsibility.

Swaabi Lab Editorial Department