BoJ holds rate at 1.25% but flags inflation risks, ING sees yen weak into 2026
The Bank of Japan kept its policy rate at 1.25% and said for the first time that its 2% inflation goal had been reached, ING says, while USD/JPY is expected to stay in a 155-160 range before easing in the second quarter of next year.
ING economist Chris Turner said the BoJ’s statement and updated Outlook report pointed to three sources of upside inflation risk: energy prices, demand tied to artificial intelligence, and a weak yen. Growth forecasts were kept near 0.7-0.8%, close to or above the economy’s potential rate, while consumer price index projections were nudged higher.
ING now expects the central bank to raise rates in December, followed by another move in March or April, which would take the policy rate toward the 2.00% level markets are pricing in for next summer. Investors remain split on whether the next hike lands in December or January, but confidence in the broader path higher has grown.
Turner noted the BoJ appeared to acknowledge rate increases elsewhere and the danger that holding still while the Fed and ECB tighten in December could weigh further on the yen. Despite the hawkish tone of the hold, USD/JPY slipped slightly, in part because the US dollar softened broadly on the day.
ING expects the pair to stay firm near the top of a 155-160 range before reversing lower in the second quarter of 2026.
For currency markets, the pace of BoJ tightening relative to the Fed and ECB remains the key driver of USD/JPY: faster Japanese hikes narrow rate differentials and tend to support the yen, while delays keep it under pressure.
Source: FXStreet