The Bank of Japan (BoJ) held its benchmark short-term interest rate unchanged in the 0.4%–0.5% range on Thursday, marking its sixth consecutive meeting without a policy adjustment. The widely anticipated decision extends the central bank’s cautious approach to policy tightening, as it weighs the balance between sustaining growth and achieving its 2% inflation target.
BoJ extends policy pause for sixth straight meeting
The BoJ reiterated that real interest rates remain “significantly low” and that any future rate hikes will depend on the economy and prices evolving in line with projections. The policy statement emphasized that monetary policy will continue to be conducted “appropriately” with the goal of achieving the 2% inflation target sustainably and stably.
Board members Hajime Takata and Naoki Tamura dissented from the majority decision, proposing an increase in the short-term rate target to 0.75% from 0.5%. Takata argued that Japan has largely exited its deflationary phase, suggesting that the price stability goal has been “more or less achieved.” Tamura warned that inflation risks were skewed to the upside and that policy should move closer to a neutral rate. Both proposals were rejected by majority vote.
Inflation outlook steady; GDP forecasts little changed
According to the BoJ’s quarterly Outlook Report, the central bank expects underlying consumer inflation to stagnate temporarily before gradually increasing, reaching levels broadly consistent with the 2% target between fiscal 2025 and 2027. The report noted that the impact of foreign exchange volatility on prices has intensified as firms have become more active in raising both prices and wages.
The BoJ’s median forecast for Japan’s real GDP stands at +0.7% for fiscal years 2025 and 2026, unchanged from July’s projections, and +1.0% for 2027. The median core CPI forecast remains at +2.7% for FY2025, +1.8% for FY2026, and +2.0% for FY2027.
Risks to the economic outlook were described as “skewed to the downside,” while inflation risks were deemed “roughly balanced.” The BoJ cited persistent global uncertainties, including trade policy tensions, commodity price fluctuations, and the potential effects of fiscal expansion in the US and Europe.
BoJ warns of global risks and FX volatility
The BoJ’s risk assessment underscored ongoing uncertainty surrounding the global economy, particularly regarding the timing and scale of potential downturns stemming from US tariffs and China’s growth slowdown. The central bank noted that developments in global trade policy could alter the long-term trajectory of globalization and impact Japan’s export-driven economy.
Officials also highlighted that currency fluctuations now exert a greater influence on domestic prices, given Japan’s evolving corporate pricing behavior. Policymakers stressed the need for vigilance in monitoring how trade policy uncertainty could affect both market stability and inflation dynamics.
Market reaction: USD/JPY rebounds toward 153.00
In immediate market reaction, USD/JPY climbed sharply to challenge the 153.00 level before easing slightly to 152.80, up 0.11% on the day at the time of writing. The move reflected investor disappointment over the BoJ’s cautious tone and the lack of a clear signal for an imminent rate hike, reinforcing short-term support for the US dollar.
Background: markets had priced in a hold
Ahead of the decision, investors widely expected the BoJ to maintain its policy stance unchanged while awaiting direction from Prime Minister Sanae Takaichi’s new cabinet. Analysts noted that the government’s preference for loose fiscal policy could delay further monetary tightening. A Reuters poll indicated that 60% of economists still expect a rate hike to 0.75% before year-end, though market pricing for an October move had dropped to 24% from 68% a month earlier.
Japan’s persistent inflation—headline CPI rose to 2.9% in September from 2.7% continues to challenge the BoJ’s dovish bias. Rising service-sector inflation and wage growth support arguments for further normalization, but Governor Kazuo Ueda remains cautious about tightening prematurely amid external risks.
From a technical standpoint, USD/JPY faces resistance near 153.20, with a dovish BoJ statement potentially pushing the pair toward eight-month highs around 153.25 and even February’s 154.80 level. Conversely, any hint of a near-term rate hike or additional dissenters could revive yen strength, bringing USD/JPY back toward the 151.50 zone.
