Aussies holidaying to Japan could soon pay more as interest rate hike tipped

Australian jetsetters hoping for a cheap holiday in Japan could soon be paying more as the country’s central bank mulls over a major economic decision.

The Bank of Japan (BOJ) is tipped to increase interest rates by .25 per cent to 1.25 per cent this week, its highest rate in 31 years, to try to get a hold of rising inflation.

A rate hike would impact the favourable exchange rate between the Japanese Yen and Australian Dollar which helped it skyrocket to the third most travelled to country among Australians.

Almost one million Australians travelled to Japan in the 2025-2026 financial year, which is more than double pre-pandemic statistics according to the Australian Bureau of Statistics (ABS)

Exchange rates became increasingly more affordable for Australians post-pandemic with one Australian dollar getting as much as ¥114.40 on September 1, meaning a $5000 holiday budget converted to about ¥572,000 — a 36-year high.

While that exchange rate meant holidays were more affordable for Australians, it also reflected troubling economic conditions for Japan.

Japan’s annual wholesale inflation spiked to 7.6 per cent in August which the BOJ believes will send consumer inflation rates above 2 per cent.

Those indications sounded the alarm for economists who began tipping a rate rise and sent exchange rates tumbling to ¥552,190 by September 9.

While it has slightly bounced back ahead of the BOJ’s decision, a rate hike could topple the exchange rate again and leave Australians with planned trips in the lurch.

Four sources familiar to the BOJ told Reuters that many within the decision-making process see conditions falling into place for another rate hike with the economy on course for a moderate recovery and price pressure building.

While the yen’s recent rebound could ease pressure on prices by moderating increases in import costs, the currency’s past declines and a ⁠renewed surge in fuel prices will keep the BOJ on guard over inflation risks, they said.

Those sources also noted that financial conditions would still be loose if interest rates were to rise to 1.25 per cent, meaning future increases could also be on the cards.

With markets having fully priced in a September hike, some market players had ​bet the BOJ could spur a surprise by going with a bigger-than-expected 50 basis point hike.

With no immediate risk of an abrupt jump in wage and price growth, however, the BOJ will likely opt for the usual 25 point ‌hike next ⁠week and await more data to gauge whether another near-term increase would be necessary, the sources said.