TOKYO — The Bank of Japan kept its short-term policy rate at 1.25% on Friday, October 30, by an 8-1 vote, but said underlying inflation is now at a level generally consistent with its 2% price stability target, Reuters reported.

Source: Reuters

It is the first time the bank has made that judgment since it introduced the 2% target in January 2013, Aju Press reported, citing the bank's statement and its quarterly Outlook Report. The bank had previously described underlying inflation only as approaching the target — a shift in wording that analysts said brings its assessment closer to price data that have run at or above 2% for much of the past four years.

The hold is the next step after the developments this desk has followed this month: the bank raised the rate from 1.00% to 1.25% in September, board members then signalled that underlying inflation was "quite close" to 2%, and core inflation topped the target in the latest monthly data. Board member Hajime Takata dissented on Friday, proposing an immediate rise to 1.50% on the grounds that the target has been reached and policy should move faster towards a neutral rate, Aju Press reported.

2027 inflation forecast raised, stock-fund sales sped up

In its Outlook Report the bank raised its forecast for core consumer inflation, excluding fresh food, in fiscal 2027 to 2.6%, up 0.2 points from 2.4% in July, and attributed the rise to higher crude oil prices since the summer. The fiscal 2026 forecast was left unchanged at 2.5%, Aju Press reported.

The board also voted unanimously to raise annual sales of the exchange-traded funds it holds from about ¥330 billion to about ¥860 billion at book value, starting in January 2027 — yaani roughly two-and-a-half times the previous pace. The bank said this year's sales had not significantly affected the market and that stock-market trading volumes had increased. Former BOJ official Tohru Sasaki told Reuters the faster ETF sales were "a bit surprising" in a risk-off environment.

At 1.25%, the policy rate stands at its highest level since 1995, according to Yonhap reporting carried by Korean outlets. The bank stressed that financial conditions remain accommodative and that it will keep adjusting the rate according to economic, price and financial developments.

A boring hold, a hawkish direction

"Bottom line: boring hold, hawkish direction," Masahiko Loo of State Street Investment Management told Reuters. "The debate is no longer whether the BOJ normalises, but where terminal lands. Our base case remains around 1.75% as Japan joins the synchronised global tightening cycle." Governor Kazuo Ueda was due to explain the decision at a news conference at 3:30 p.m. Tokyo time on Friday.

Source: Reuters