- Decision
- Maintain
- Rate change
- 0 bps
- uncollateralized overnight call rate
- 0.5%
The Policy Board of the Bank of Japan on 1 May 2025 voted unanimously to maintain its policy stance, keeping the uncollateralised overnight call rate at “around 0.5 %,” citing a moderating growth outlook and expectations that underlying consumer price inflation will soften before edging back toward the 2 % price-stability target in the latter half of the projection horizon. After lifting the rate by 25 bp to 0.5 % in January and holding it unchanged in March, the central bank again left settings steady. It will continue to guide the overnight call rate near 0.5 % and judged overall financial conditions to be accommodative. Core CPI (all items excl. fresh food) is currently rising by 3.0-3.5 % y/y, but the Bank projects gains of 2.0-2.5 % in fiscal 2025 and 1.5-2.0 % in fiscal 2026 as energy and import-price shocks fade, while real GDP growth is expected to slow to about 0.5 - 0.6 % in fiscal 2025 before firming to 0.7 - 0.8 % in 2026 amid supportive financial conditions. Exports and industrial production remain broadly flat, and private consumption continues a moderate uptrend despite higher prices, helped by rising wages and government relief measures; housing investment is relatively weak. The Bank warns that trade tensions, lower crude prices, and external demand softness pose downside risks to both activity and inflation, and it sees risks to growth and prices as skewed to the downside through fiscal 2026. While real rates stay “significantly low,” the Bank reiterates that it will “continue to raise the policy interest rate and adjust the degree of monetary accommodation” if its baseline of gradually rising inflation and tightening labour markets materialises, but stresses the need for careful monitoring of economic, price and financial developments amid elevated global uncertainty.
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.