Macro
Bank of Japan Holds Rate at 1.25% but Says Inflation Goal Reached, Keeping December Hike in Play
Image: hslergr1 via Pixabay
One board member voted for an immediate increase, and the central bank will more than double the pace of its ETF sales from January.
By Emmanuel Cruz ·
The Bank of Japan left its short-term policy rate unchanged at 1.25% on Friday, as widely expected, but declared that underlying inflation has reached its 2% target and said it stood ready to keep raising borrowing costs, a combination that keeps a December rate increase on the table [1].
The decision was made by an 8-1 vote, with board member Hajime Takata dissenting [1]. Takata proposed lifting the rate to about 1.5%, arguing that underlying consumer inflation had already reached the target, but his proposal was defeated [2]. No board member argued for lower rates [2].
In its quarterly outlook, the central bank raised its inflation forecasts, including lifting its price outlook for 2027 to 2.6%, according to Shuhei Uehara of Gaitame.com Research Institute, as quoted by Reuters [1]. The judgment that underlying inflation is consistent with the 2% goal marks a notable change for a central bank that spent years trying to lift prices, and analysts said it shifts the debate toward how high rates will ultimately go [1].
At his news conference, Governor Kazuo Ueda said underlying inflation "has reached levels consistent with our price target," Reuters reported [3]. He said the BOJ would adjust policy so that inflation stays anchored around 2% and must watch for the risk of prices overshooting, while adding that he would not say risks had increased sharply from a month earlier [3]. Reuters reported that the next increase could come as soon as December [3].
The board also voted unanimously to speed up the sale of exchange-traded funds it accumulated during years of stimulus. Starting in January 2027, it will sell about 860 billion yen a year on a book-value basis, up from roughly 330 billion yen under the pace in place since January 2026 [2]. Its sales of real estate investment trusts were left unchanged [2]. Some analysts quoted by Reuters described the faster ETF sales as a surprise, though one said its market impact should be small [1].
Market reaction was measured. The yen strengthened after the decision, reaching a high of 157.115 per dollar, Reuters reported via Yahoo Finance, before trimming some of the gain [4][1]. Uehara said the yen's move reflected Takata's dissent and the higher 2027 forecast, adding that "these things were expected" [1]. Going into the meeting, markets priced about an 80% chance of a December hike, according to investingLive [2].
Analysts were divided on timing. Kazutaka Maeda of Meiji Yasuda Research Institute said the BOJ may now move every three months rather than every six, making December a credible date, while Hirofumi Suzuki of SMBC said the central bank faces little pressure to raise rates quickly [1]. Masahiko Loo of State Street Investment Management said he expects the next increase around the turn of the year [1].
The decision matters beyond Japan because a stronger yen and rising Japanese borrowing costs can ripple into global currency and bond markets.
What to watch next: Japanese inflation and wage data ahead of the BOJ's December meeting, the yen's path against the dollar, and how markets absorb the larger ETF sales once they begin in January.
Sources:
[1] Reuters (via Yahoo Finance), "Analysts react to BOJ decision to keep rates steady", October 30, 2026. https://finance.yahoo.com/economy/policy/articles/instant-view-analysts-react-boj-032614967.html
[2] investingLive, "BoJ keeps policy rate unchanged at 1.25%, as expected", October 30, 2026. https://investinglive.com/central-banks/boj-keeps-policy-rate-unchanged-at-1-25-as-expected/
[3] Reuters (via 93.3 The Drive), "BOJ Governor Ueda's comments at news conference", October 30, 2026. https://www.933thedrive.com/2026/10/30/boj-governor-uedas-comments-at-news-conference-27/
[4] Yahoo Finance, "Stock market today: Dow, S&P 500, Nasdaq futures fall as Amazon, Intel earnings rattle investors", October 30, 2026. https://finance.yahoo.com/markets/live/stock-market-today-friday-october-30-dow-sp-500-nasdaq-083236552.html
This article was produced with AI assistance. It is for informational purposes only and is not financial advice. StockVolt and its authors may hold positions in securities mentioned.