BOJ holds rates at 1.25% as it says inflation aligns with 2% target
The Bank of Japan kept its policy rate at 1.25%, its highest since 1995, and said for the first time since 2013 that underlying inflation is generally consistent with its 2% target.
At a glance
- The BOJ held its policy rate at 1.25%, its highest since 1995, with board member Hajime Takata dissenting in favour of a hike to 1.5%.
- It said underlying inflation is generally consistent with its 2% target, the first such assessment since the target was adopted in 2013.
- The BOJ raised its fiscal 2027 inflation forecast to 2.6% and flagged a risk that inflation could rise beyond 2%.
The Bank of Japan (BOJ) left its policy rate unchanged at 1.25% and said underlying inflation is "generally consistent" with its 2% target — the first time it has made that assessment since adopting the target in 2013. The rate remains the highest since 1995.
The decision in Tokyo was split 8-1, with board member Hajime Takata dissenting. He had wanted the central bank to raise the policy rate to 1.5%.
Until now, the BOJ described underlying inflation as "approaching 2 percent."
Forecasts raised
The BOJ upgraded its inflation forecast for fiscal 2027 to 2.6% from 2.4%. Its "core-core" forecast, which strips out fresh food and energy prices, was also raised, to 2.7% from 2.6%.
The central bank flagged a risk that underlying inflation could deviate upward beyond 2%, saying that firms' behaviour has been shifting more toward raising wages and prices and that various factors could drive prices up.
What economists expect
A CNBC survey of 16 economists conducted before the decision found that all of them expect the BOJ to set the stage for a rate hike in December or January, as domestic inflation and wages continue to rise. Thirteen respondents said they expect a terminal rate — the level at which the BOJ is expected to stop tightening — of 1.75% to 2% by around mid-2027.
Japan has been grappling with a weak yen and high energy prices that have pushed up inflation. Experts told CNBC that consumer price index figures are being held down by energy subsidies from the Takaichi administration.
The most recent inflation numbers for September showed core inflation at 2.1%, its highest level in 2026 and above expectations.
Earlier this month, Finance Minister Satsuki Katayama reportedly told parliament that Japan was "on the cusp of shifting to a period of sustained inflation driven by rising wages." Inflation-adjusted wages rose for the eighth month in a row in August, climbing 1.5% from a year earlier, according to the most recent government data.
CNBC described the report as breaking news and said it would be updated. CNBC's Lisa Kim contributed to the report.
Source: CNBC.
Questions and answers
- Did the Bank of Japan raise interest rates?
- No. The BOJ held its policy rate at 1.25% in a split 8-1 vote. Board member Hajime Takata dissented and had wanted the bank to hike the rate to 1.5%.
- What did the BOJ say about its 2% inflation target?
- It said underlying inflation is "generally consistent" with the 2% target, the first time it has made that assessment since adopting the target in 2013. Previously it said inflation was "approaching 2 percent."
- When is the BOJ expected to raise rates next?
- A CNBC survey of 16 economists found all expect the BOJ to set the stage for a hike in December or January. Thirteen expect a terminal rate of 1.75% to 2% by around mid-2027.
