The Bank of Japan (BOJ) has raised its policy interest rate to approximately 1%, marking the highest level in 31 years and signaling a continued shift away from the ultra-low rate environment that has defined Japanese monetary policy for decades. The decision, announced on June 16, 2026, following a two-day monetary policy meeting, represents the BOJ's second rate hike since December 2025. According to NHK, BOJ Deputy Governor Uchida, speaking on behalf of Governor Ueda at the press conference, stated that the rate increase aims to address risks of inflation exceeding expectations. The central bank cited concerns about rising oil prices due to deteriorating conditions in Iran, combined with a weakening yen that has been pushing up import costs and contributing to higher consumer prices across Japan. This marks a significant departure from the negative interest rate policy that characterized Japanese monetary policy for years. The last time Japan's policy rate reached the 1% level was in 1995, making this a historic moment for foreign residents who have grown accustomed to minimal returns on savings and low borrowing costs. For expats living in Japan, the immediate impact will be felt in both savings and borrowing. Major Japanese banks have already announced they will raise ordinary deposit interest rates to 0.4% annually starting in August 2026, according to NHK reports. This represents the first increase in deposit rates since February 2026 and offers better returns for those holding yen in Japanese bank accounts. However, the rate hike comes amid continued yen weakness in foreign exchange markets. Despite the BOJ's efforts to combat inflation through higher rates, the yen has continued its depreciation trend against major currencies. This presents a complex situation for foreign residents: while higher interest rates may eventually strengthen the yen and reduce imported inflation, the immediate effect has been limited. The decision reflects the BOJ's delicate balancing act. On one hand, rising prices—particularly for energy and imported goods—are eroding purchasing power for residents across Japan. On the other hand, raising rates too aggressively could dampen economic growth and affect employment. Deputy Governor Uchida emphasized that the bank is carefully monitoring various risk factors while responding to inflationary pressures. For foreign residents with mortgages or loans in Japan, this rate increase will likely translate to higher borrowing costs. Variable-rate mortgages, which are common in Japan, will see interest charges rise accordingly. Those considering major purchases or refinancing should factor in the possibility of further rate increases if inflationary pressures persist. The timing of this decision is particularly significant given global economic uncertainties. The mention of Iran-related developments affecting oil prices highlights how international events can directly impact Japan's monetary policy and, by extension, the daily lives of residents. Looking ahead, questions remain about how much further rates might rise. While the BOJ has not provided specific guidance on future rate trajectories, the central bank's statement suggests it will continue adjusting policy in response to economic conditions and inflation trends. For expats, this means the era of near-zero interest rates in Japan appears to be definitively over. Foreign residents should review their financial situations in light of these changes. Those with savings may benefit from improved deposit rates, while borrowers should prepare for higher costs. Additionally, the ongoing yen volatility means expats sending money overseas or receiving income in foreign currencies should stay informed about exchange rate movements and consider their timing for currency conversions carefully.