The Bank of Japan (BOJ) opted to leave its key interest rate unchanged at 0.75% on Friday, while updating its projections to reflect higher growth and inflation. These decisions come ahead of Japan’s upcoming general election and maintain a cautious policy tone amid evolving economic conditions.
In an 8-1 vote, the central bank decided to hold short-term rates steady, following a rate hike to three-decade highs last December. Along with the decision, policymakers raised their forecast for economic expansion in the fiscal year ending March 2026 to 0.9%, compared to a previous estimate of 0.7% for October 2025. The outlook for the following year was also revised higher, with anticipated GDP growth set at 1% from its earlier 0.7% projection.
Government data showed headline inflation for December at 2.1%, reaching its lowest point since March 2022. The figure remains above the central bank’s 2% target for the 45th consecutive month. Market participants continue to monitor BOJ’s guidance, especially related to the yen’s weakness and its potential effect on price levels.
The monetary policy announcement arrives just ahead of a critical political moment, as Prime Minister Sanae Takaichi plans to dissolve the Lower House, with a snap election scheduled for February 8.
According to Howe Chung Wan, head of Asian Fixed Income at Principal Asset Management, BOJ is expected to remain measured in its communication about future policy moves due to heightened political uncertainty, while still indicating the potential for additional rate increases.
