Bank of Japan Holds Interest Rates
30th October 2026
Today, the Bank of Japan (BOJ’s) Policy Board with a vote of 8 – 1 held its benchmark interest rate (aka the uncollateralised overnight call rate) steady at 1.25%. The dissenting board member was Hajime Takata, who wanted the central bank to hike interest rates by 25 basis points to 1.50%. Officials noted that underlying inflation* was basically under control, but the central bank would continue its on-going fight against inflation, however future decisions will remain dependent upon data and how the economy develops.
*Underlying Inflation – Often referred to as “Core Inflation” strips away items with erratic or temporary price swings such as food and energy which includes gas, electricity, petrol and diesel. This allows central banks and economists to understand the true domestic trend. Such items underlying inflation measures are services which include restaurants, healthcare, travel (such as airlines, trains, buses), communications, rent, clothing, and household items.
*Headline Inflation – Measures the total change in prices across all goods and services in a standard consumer basket such as the CPI (Consumer Price Index). It includes everything consumers buy.
At a press conference, the Governor of the BOJ, Kazuo Ueda, signalled that the central bank could raise interest rates again as early as December after declaring that underlying inflation has generally reached the central bank’s target of 2.00%. He advised that the central bank could raise its policy rate further to prevent prices overshooting the target. Governor Ueda went on to say, “When it comes to achieving our target, it’s important to achieve inflation stably and sustainably. In that sense, we are not quite there yet. The key is for underlying inflation to become firmly anchored at 2.00%”.
The Governor went on to add, “ We saw the need to scrutinise a bit more economic and price risks, as well as financial conditions. But underlying inflation has reached levels consistent with our price target. Financial conditions remain accommodative. There are various upside risks. We must therefore be vigilant to the risk of inflation overshooting our target.” However, despite declaring that underlying inflation had hit the central bank’s target of 2.00%, Governor Ueda sent out positive signals for lifting the benchmark interest rate in December. He was quoted as saying, “At every policy meeting, including the next one, we will assess the likelihood of our outlook materialising, as well as risks, and make our decisions accordingly”.
Many experts, analysts and financial commentators agree that the BOJ will indeed raise interest rates in December, with financial markets currently pricing in an 80% chance of an interest rate hike of 25 basis points by the central bank. Analysts advise that financial markets have also priced in a total of 50 basis points increase in interest rates by September 2027. Indeed, in an updated quarterly report, the BOJ changed its inflation projections for 2027, forecasting an increase from 2.40% to 2.60% citing the rise in global oil prices as the guilty party.
Interestingly, the Japanese Prime Minister, Sanae Takaichi, has enjoyed a reputation as a staunch monetary-easing advocate, an exact opposite of the fiscal tightening currently being employed by the BOJ. However, experts advise that Prime Minister Takaichi is shifting away from her stand on monetary easing, because as of late October 2026, her administration has repeatedly emphasised that it fully respects the autonomy and policy independence of the Bank of Japan. Indeed, rather than publicly pushing back against monetary tightening, the Prime Minister and her cabinet have signalled that the Japanese economy has moved beyond the point of needing aggressive reflationary stimulus.
