- Decision
- Raise
- Rate change
- 25 bps
- uncollateralized overnight call rate
- 1%
The Bank of Japan decided by a 7-1 majority to set the guideline for money market operations at around 1.0 percent for the uncollateralized overnight call rate for the intermeeting period, effective June 17, judging that Japan’s economy has recovered moderately despite some weakness partly due to the situation in the Middle East and that there is a risk underlying consumer price index inflation could deviate upward above the 2 percent price stability target as crude oil price pass-through progresses and medium- to long-term inflation expectations continue to rise. After raising the rate to around 0.75 percent in December 2025, the Bank had held it there in January, March and April 2026. In line with the move, it set the interest rate on the complementary deposit facility at 1.0 percent and the basic loan rate under the complementary lending facility at 1.25 percent, also effective June 17. The Bank said CPI excluding fresh food has recently been around 1.5 percent, or below 2 percent, partly because of government measures to reduce the household burden of higher energy prices, while the economy is expected to continue growing moderately at a decelerated rate and financial conditions remain accommodative, with negative real rates, increased funding demand and favorable CP and corporate bond issuance conditions. It said overseas economies have grown moderately on the whole, but higher crude oil prices, the future course of the Middle East situation, developments in global AI-related demand and foreign exchange markets warrant close attention. The Bank said it will continue to raise the policy interest rate and adjust the degree of monetary accommodation, while considering the timing and pace in response to developments in economic activity, prices and financial conditions.
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.