The Bank of Japan lifted its policy rate by 25 basis points to 1.25% on September 18, the highest level since 1995, but a split vote and cautious guidance triggered an unusual market reaction: the yen weakened instead of strengthening, while Asian equities rose.
The decision was passed by a 7-2 vote, with board members Asada Toichiro and Sato Ayano dissenting. Both are seen as reflationists appointed by Prime Minister Sanae Takaichi, and their opposition signaled a potentially shallower tightening path than the headline rate suggested. The BoJ said it was appropriate to adjust monetary accommodation toward its 2% price target, but stressed that accommodative conditions would be maintained after the change.
In markets, the yen slid past 157 per dollar before settling near 156.8, the 10-year Japanese government bond yield fell about 4.9 basis points to 2.947%, and the Nikkei 225 advanced roughly 1.5%. South Korea's KOSPI climbed about 2%, outperforming the region as Samsung Electronics rose 2.6% and SK Hynix jumped around 4.5%. Foreign investors turned net buyers of KOSPI stocks for the first time in eight sessions, purchasing about 231 billion won. Lower oil prices, with Brent crude falling toward $103-$104 a barrel, and easing US Treasury yields supported the broader risk-on tone.
SMBC chief FX strategist Hirofumi Suzuki said the two dissents "came as a modest surprise" and tempered expectations for further hikes. Governor Kazuo Ueda added that the Bank does not assume a specific pace for future increases, reinforcing the dovish read. Economists surveyed by Reuters project the policy rate reaching 1.5% by March 2027, and the December meeting is now seen as a key test of whether the tightening cycle remains credible.
