- Decision
- Maintain
- Rate change
- 0 bps
- uncollateralized overnight call rate
- 1.25%
The Bank of Japan held its uncollateralized overnight call rate target at around 1.25% by an 8-1 vote, following three quarter-point increases from 0.5% between December 2025 and September 2026. The central bank also unanimously decided to accelerate annual sales of exchange-traded funds (ETFs) to around JPY 860 billion from JPY 330 billion on a book-value basis, effective January 2027. It cited smooth ETF disposals since January 2026 without significant market impact and increased equity-market turnover. Dissenting board member Hajime Takata proposed a rate target of around 1.5%, arguing that underlying inflation had reached the price stability target and that policy had entered a new phase requiring faster movement towards the neutral rate to allow a flexible response. The central bank retained discretion to adjust or suspend ETF sales temporarily within the annual sales pace, depending on market 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. The July 31 decision kept the rate at around 1.0 percent by an 8-1 vote, with the Bank 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 signalling further rate increases while assessing economic activity, prices and financial conditions, with CPI risks skewed upward and the dissenting member proposing a rate of 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, while warning that producer price increases spilling into consumer prices, rising medium- to long-term inflation expectations and accommodative financial conditions could push underlying CPI inflation above target, and reiterating further rate increases while assessing the baseline scenario and risks from the Middle East situation, expanding artificial intelligence-related demand and foreign exchange rates. On October 30, it held the rate at around 1.25 percent by an 8-1 vote, with the dissenting member proposing an increase to around 1.5 percent on the grounds that underlying inflation had reached the price stability target and policy had entered a new phase calling for faster adjustment toward a neutral interest rate to enable flexible responses.