- Decision
- Maintain
- Rate change
- 0 bps
The Policy Board of the Bank of Japan voted 8-1 to keep its guideline for money-market operations unchanged, continuing to guide the uncollateralised overnight call rate at “around 0.75%,” judging that the economy is recovering moderately while inflation has eased to about 2 percent as government energy subsidies take effect and food-price pressures abate. After a 25 bp hike to 0.75 percent in December 2025, the rate has been held steady at the January and now the 19 March 2026 meetings. Financial conditions remain accommodative, with real rates “significantly low,” corporate profits high despite tariff headwinds, business investment on a moderate uptrend, resilient private consumption supported by a firm labour market, and inflation expectations rising moderately. The Bank expects headline CPI (ex-fresh food) to dip below 2 percent in the near term before picking up again on higher oil prices, while underlying inflation is projected to move gradually toward a level “generally consistent” with the 2 percent target in the latter half of the January 2026 Outlook horizon. Heightened crude-oil prices linked to Middle East tensions and uncertainties around global trade policies pose key external risks, and the central bank cautioned that future FX and financial-market volatility could affect prices. It reiterated that, should the baseline outlook be realised, it will continue to raise the policy rate and scale back monetary accommodation in pursuit of sustainable and stable achievement of the price-stability goal.
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.