BOJ Holds Rate at 1.25%: "2% Inflation Target Effectively Achieved" (Updated)

BOJ to Assess Impact of Last Month's Rate Hike
Officially Acknowledges Underlying Inflation Has Reached 2%
Calls Emerge for Rate Hike to 1.5%

The Bank of Japan (BOJ) held its policy rate at 1.25% per year and declared that inflation had effectively reached its 2% target for the first time in 13 years. The BOJ judged that Japan was moving away from prolonged deflation (a sustained decline in prices) and toward an economic structure in which wages and prices rise together.

The Bank of Japan (BOJ) headquarters in Tokyo, Japan. Reuters-Yonhap News Agency.

According to the Nihon Keizai Shimbun (Nikkei) on October 30, the BOJ said at its monetary policy meeting that underlying inflation, excluding temporary factors, had “reached a level broadly consistent with” its 2% target. It was the first such assessment in 13 years, since the BOJ introduced its price stability target in January 2013.

The BOJ voted by a majority of its nine policy board members to keep its target for the unsecured overnight call rate, its short-term policy rate, at 1.25% per year. The move was intended to allow the BOJ to assess the impact of the rate hike it implemented in September on the economy and prices.

Some voices also called for further rate hikes. Policy board member Hajime Takata proposed raising the rate to 1.5%, arguing that the pace of rate increases should accelerate now that underlying inflation had reached 2%. The proposal was rejected by a majority.

In 2013, under then-Governor Haruhiko Kuroda, the BOJ pursued a 2% inflation target through an ultra-loose monetary policy that included large-scale purchases of government bonds. However, the target took longer to achieve as entrenched deflationary sentiment proved slow to fade. More recently, rising international oil prices and stronger consumer demand driven by wage increases have combined to sustain price growth.

In its economic and price outlook report released on October 30, the BOJ projected that underlying inflation would remain around 2%. It raised its forecast for the increase in the consumer price index excluding fresh food in fiscal 2027 by 0.2 percentage points to 2.6%. The BOJ expects the rise in international oil prices since this summer to push up consumer prices with a time lag.

The BOJ also raised some of its economic growth forecasts. It lifted its forecast for real gross domestic product (GDP) growth in fiscal 2026 from 0.6% to 0.7%, expecting expanding global demand for artificial intelligence (AI) to support corporate earnings. By contrast, it lowered its forecast for growth in fiscal 2027 from 0.8% to 0.7%.

BOJ Governor Kazuo Ueda is scheduled to explain the reasons behind the rate decision and the outlook for monetary policy at a press conference this afternoon.

This content was produced with the assistance of AI translation services.