- Decision
- Maintain
- Rate change
- 0 bps
- uncollateralized overnight call rate
- 0.5%
The Policy Board of the Bank of Japan voted unanimously on 19 March to maintain its guideline for money-market operations, continuing to guide the uncollateralised overnight call rate at around 0.5 percent, judging that the economy is expanding moderately and that underlying inflation is inching higher amid sustained wage gains and an improving output gap. After a 25 bp hike in January that raised the rate to the current level, the central bank will keep financial conditions accommodative while targeting the 0.5 percent overnight rate. Core CPI (all items less fresh food) is currently rising by 3.0–3.5 percent year on year; the bank projects underlying inflation to rise gradually and reach a level broadly consistent with its price-stability objective in the second half of the forecast horizon, supported by steady business investment and a moderate uptrend in private consumption despite weak housing demand. Exports and industrial production are flat even as overseas economies grow moderately, and the board warned that exchange-rate moves, commodity prices and global policy and trade developments pose significant risks to the outlook, pledging close monitoring of financial and foreign-exchange markets given firms’ greater propensity to raise wages and prices.
Rate evolution
From June 2025 to April 2026, the Bank of Japan kept the uncollateralized overnight call rate at 0.5 percent until December, then raised it to 0.75 percent and held it there amid a recovery marked by rising business investment and resilient consumption under accommodative financial conditions, while consumer price index (CPI) inflation was lifted by wage pass-through, import-price effects and food prices that the Bank expected to fade, leaving underlying CPI inflation to rise gradually toward the 2 percent target. Uncertainty over trade and other policies abroad, initially described as extreme, had eased by December as confidence grew that wage and price increases would persist and bring underlying inflation into line with target, and in March and April 2026, as CPI inflation eased to around 2 percent, the Bank said it would continue raising the policy rate if the January Outlook path was realized, adding Middle East tensions, crude oil and firms’ wage- and price-setting behavior to key risks as April’s 6-3 vote showed greater concern that price risks were skewing upward.
On June 16, the Bank raised the uncollateralized overnight call rate to around 1.0 percent by a 7-1 majority vote as the economy recovered moderately, the risk of a significant slowdown decreased and financial conditions remained accommodative, while flagging upside risks to underlying CPI inflation from fast crude oil pass-through in business-to-business transactions and rising medium- to long-term inflation expectations. On July 31, it held the rate at around 1.0 percent by an 8-1 vote, noting that CPI inflation was around 1.5 percent due partly to government energy measures but was likely to accelerate clearly above 2 percent from the second half of fiscal 2026 as wage increases fed into selling prices and crude oil, semiconductor prices, global artificial intelligence-related demand and yen depreciation pushed up prices, and saying that, with CPI risks skewed upward, it would continue raising the policy rate while assessing economic activity, prices and financial conditions, while the dissenting member proposed raising the rate to around 1.25 percent.
The Bank decided by a 7-2 vote on September 18 to raise the uncollateralized overnight call rate to around 1.25 percent effective September 24, judging that economic activity and prices were developing generally in line with the baseline scenario as the economy recovered moderately despite the Middle East situation and underlying CPI inflation approached 2 percent. With a high year-on-year rise in the producer price index beginning to spill into consumer prices, medium- to long-term inflation expectations continuing to rise and financial conditions remaining accommodative, the Bank warned that underlying CPI inflation could move above the 2 percent target amid risks from the Middle East situation, expanding artificial intelligence-related demand and foreign exchange rates, and said it would continue raising the policy rate while assessing the likelihood of realizing the baseline scenario and risks to the outlook when determining the timing and pace of adjustment.