The Bank of Japan (BOJ) left its key interest rate unchanged at 1.25% following its latest policy meeting, maintaining the highest rate level seen since 1995. The decision came amid growing concerns about inflation, with the central bank indicating it remains prepared to tighten policy further if inflation risks intensify.
The policy board’s vote saw one dissent (out of eight), as member Hajime Takata advocated for an immediate rate increase to 1.5%.
After the meeting, the Bank of Japan highlighted that underlying inflation is now broadly in line with its 2% objective. Previously, policymakers described price growth as only nearing that threshold.
Updated forecasts from the central bank reflect this changing environment. The inflation outlook for the 2027 fiscal year has been lifted to 2.6% from a previous projection of 2.4%. The projection for so-called “core-core” inflation, which excludes volatile components such as fresh food and energy, was also revised upward to 2.7%.
The central bank underscored the potential for inflation to move beyond its target, citing a trend among companies toward raising both wages and prices, alongside various other factors.
Japan continues to contend with a depreciating yen and elevated energy prices, factors that have contributed to persistent inflationary pressures. Nonetheless, government subsidies aimed at containing energy costs have tempered the rise in consumer prices, according to analysts.
Inflation data for September showed core inflation at 2.1%, marking the highest rate recorded in 2026 and surpassing forecasts. The government’s latest figures also indicate inflation-adjusted wages increased for the eighth consecutive month in August, rising 1.5% year-on-year, suggesting that wage growth may further support sustained inflation in the period ahead.
