Nikkei reported that Japanese central bank officials monitored currency market rates on Thursday following a shift in monetary policy. The Bank of Japan increased the short term interest rate target by 25 bps to 1.25% on September 18, a 7-2 vote decision. This current overnight call rate represents the highest borrowing cost for Japan since 1995.

The yen slid after the announcement, leading to fears that currency volatility could fuel further domestic price increases. BoJ officials warned that underlying inflation might exceed the 2% target, cited in part to higher oil prices. Markets currently price in additional quarter point increases, with projections reaching 1.5% by March 2027.