Bank of Japan expected to raise rates from 1% to 1.25% on September 18, 2026

A September 18, 2026, post expects the Bank of Japan to raise rates to 1.25%, while US rates remain at 3.75%–4%. The commentary says the rate gap has helped fuel the yen carry trade: borrowing cheaply in Japan to invest in higher-yielding assets abroad. It argues that government debt above 200% of GDP and rising interest costs constrain Japan’s ability to raise rates aggressively. A surprise half-point hike could strengthen the yen sharply and pressure risk assets, it warns, while noting that lower-than-expected Japanese inflation reduced pressure for aggressive action.