BoJ keeps rate steady at 1.25% but warns of upside inflation risk
Japan's central bank left its benchmark borrowing cost unchanged at 1.25% on Friday, in line with forecasts, while cautioning that price pressures could now run hotter than expected.
The outcome capped a two-day gathering of policymakers and keeps borrowing costs at their highest point in more than three decades, following a quarter-point increase delivered in September. One board member, Naoki Takata, voted against the move.
In its accompanying statement, the bank noted that underlying price growth has climbed to a pace broadly matching its 2% goal and should hold near that mark going forward. Officials left their forecast for core consumer prices in fiscal 2026 at a median of 2.5%, the same figure given in July, while lifting the projection for core-core prices in fiscal 2027 to 2.7% from an earlier 2.6%. The bank added that expectations for inflation over the medium and longer term remain anchored close to 2%, and stressed that the balance of risk has shifted: rather than facing the threat of prices falling short, as in previous years, Japan must now watch for the possibility that inflation runs above target.
Policymakers reiterated their intention to continue tightening gradually, with the pace and timing of further moves to be guided by how closely growth and prices track the bank’s central forecast. Separately, the institution announced it would accelerate the pace at which it offloads its exchange-traded fund portfolio, targeting roughly 860 billion yen in annual sales, up sharply from the previous pace of about 330 billion yen.
Among the risks cited by officials were the ongoing conflict in the Middle East, demand tied to artificial intelligence, swings in currency markets, and climbing crude oil prices, which they said could filter through to consumer costs via transactions between businesses. The bank also flagged a recent jump in grain prices linked to geopolitical strain and unusual weather patterns.
In the wake of the announcement, the yen attracted modest buying interest, with the USD/JPY pair slipping 0.20% on the session to change hands near 157.40.
A central bank that signals readiness for additional increases tends to bolster its currency by narrowing the rate differential with peer economies, a dynamic that can pressure USD/JPY lower and influence broader appetite for risk across currency and equity markets. The BoJ interest rate decision therefore remains a key input for traders positioning in the yen heading into year-end.
Source: FXStreet