- Decision
- Maintain
- Rate change
- 0 bps
- uncollateralized overnight call rate
- 1%
The Bank of Japan held its policy rate at around 1.0% for the intermeeting period by an 8-1 vote, as it projected moderate but slower growth in fiscal 2026 and underlying inflation approaching its 2% price stability target, while judging inflation risks to be skewed to the upside. Over the past year, the rate was 0.5% in July 2025, rose by 25 basis points to 0.75% in December and by another 25 basis points to 1.0% in June 2026. The central bank will encourage the uncollateralized overnight call rate to remain around 1.0%. Consumer price index inflation excluding fresh food was recently around 1.5%, but is expected to accelerate clearly above 2% from the second half of fiscal 2026 before declining toward that level later in the projection period, while tight labor markets and accommodative financial conditions support activity. The recent yen depreciation has substantially raised import-price inflation and is expected to lift durable-goods prices. Higher crude oil prices linked to the Middle East are weighing on activity and raising prices, while stronger global artificial intelligence-related demand is supporting growth and adding price pressures. The Bank of Japan said it will continue raising the policy rate and adjusting monetary accommodation in response to economic, price and financial conditions, considering the timing and pace while monitoring Middle East developments, artificial intelligence-related demand and foreign exchange rates.
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.