The Bank of Japan's nine-member board voted 7-2 to maintain the target for overnight interest rate at 0.5 percent, in line with the consensus forecast and extending the policy stability seen since early in the year. Board members Naoki Tamura and Hajime Takata proposed an increase in the rate to 0.75 percent, as they did previously.

Officials also today published updated economic forecasts. Core inflation forecasts are unchanged at 2.7 percent in this fiscal year, and then 1.8 percent and 2.0 percent in the following two fiscal years. Real GDP forecasts for fiscal years 2026 and 2027 were also unchanged at 0.7 percent and 1.0 percent respectively, with the forecast for the current fiscal year revised slightly higher from 0.6 percent to 0.7 percent.

Although their forecasts were little changed, officials noted risks to the outlook, with ongoing global trade tensions suggesting to them that growth may be weaker than they currently expect. Risks to the inflation outlook, however, were considered to be evenly balanced. Although they concluded no change in policy settings was warranted today, officials stressed that policy will continue to be set in upcoming meetings"without any preconceptions".

At its Oct. 29-30 meeting, the Bank of Japan’s nine-member board is expected to decide to maintain the target for the overnight interest rate at 0.5% for the sixth straight meeting after hiking it by 25 basis points (0.25 percentage point) in January amid uncertainty over the emerging effects of the protectionist U.S. trade policy, geopolitical risks and financial markets. The government is also trying to put together an economic revival package under Prime Minister Sanae Takaichi who took office on Oct. 21.

In September the board decided in a 7 to 2 vote (two from the financial industry) to stand pat. Board members Hajime Takata and Naoki Tamura both called for raising the target for the overnight interest rate by 25 basis points to 0.75%.

Takata, a former Mizuho Securities executive, argued that the bank’s 2% price stability target had been largely met. Tamura, formerly with SMBC, urged the central bank to raise the policy rate closer to what is considered to be neutral to economic activity amid rising inflation risk.

In response, at a post-meeting news conference on Sept. 19, Governor Kazuo Ueda repeated his view that underlying inflation is “still slightly under 2%” but that it is “getting closer” to the bank’s target. On Tamura’s proposal, Ueda agreed the upside risk to price rises “does exist as one of the risks” but stressed, “In my view, since there is a possibility that the effects of the U.S. trade policy among other things will emerge further, I think we have to keep in mind that there are downside risks to the economy and through that (channel), there are downside risks to prices.”

Ahead of the bank’s October meeting, Ueda's remarks indicated that the board was in no rush to raise rates further in the absence of data to show how the global and domestic economies are coping with the Trump tariffs in the July-September quarter onwards (Japan’s preliminary Q3 GDP is not available until Nov. 17). Earlier this month, the governor told reporters on the sidelines of the annual meetings of the IMF and World Bank that he and his colleagues would continue assessing various data until the Oct. 29-30 meeting.

The bank has repeated in its recent policy statements that it will continue raising rates if growth and inflation evolve in line with its medium-term outlook but it is still in the process of normalizing its monetary policy stance from years of keeping short-term rates near zero percent.

The Bank of Japan is the central bank of Japan. The Bank of Japan Act states that the bank's monetary policy should be aimed at"achieving price stability, thereby contributing to the sound development of the national economy." The nine-member policy board reviews economic conditions at home and abroad before making a policy decision. There is no specific time for the announcement. The board holds eight two-day Monetary Policy Meetings a year, in January, March, April, June, July, September, October and December. At each meeting, the board votes on the proposals on the bank’s monetary policy stance and the basic guideline on how to achieve the policy target submitted by the chair of the board, who is the bank governor.

The announcement of the bank’s monetary policy decision after each meeting can cause a market reaction, even when there is no change to the policy stance. Markets tend to look ahead toward a policy shift, pricing in a change to the bank’s targets for overnight and long-term interest rates, the pace of financial asset purchases or the scale of market operations.

Market participants closely monitor the news conference by the BoJ governor that usually starts at 1530 JST (0130 EST/0230 EDT/0630 GMT), a few hours after the bank releases its policy decision. Comments from the governor could provide clues to what the bank may or may not do in the near term, which in turn could trigger buying or selling of the yen against the dollar.

Since April 2023, the bank has been conducting a"broad-perspective review" of the costs and benefits of its various monetary easing measures implemented in the past 25 years. The negative overnight interest rate target introduced in January 2016 has been unpopular among lenders as it squeezes their profit margins.