Bank of Japan holds rate at 1.25% in 8-1 vote, says underlying inflation has reached 2% target
The BOJ kept its rate at 1.25% on October 30 but said underlying inflation is now at its 2% goal, keeping a December hike to 1.5% in play.
At a glance
- The Bank of Japan kept its short-term policy rate at 1.25% on Friday, October 30, 2026, by an 8-1 vote; board member Hajime Takata wanted a rise to 1.5%.
- For the first time since adopting its 2% goal in 2013, the bank said underlying inflation is broadly in line with that target, and it called the risks to prices tilted to the upside.
- It raised its fiscal 2027 core inflation forecast to 2.6% from 2.4% and trimmed its growth forecast for that year to 0.7% from 0.8%.
- The bank will more than double its sales of stock ETFs to about 860 billion yen a year from January 2027.
- Markets had priced roughly an 80% chance of a December hike before the meeting; the yen firmed slightly, trading below 157.5 per dollar.
The Bank of Japan left its main interest rate at 1.25% on Friday, October 30, 2026, but used the same meeting to say something it has never said before: Japan's underlying inflation has reached the bank's 2% target. That judgement, and a lone vote for an immediate rise, leaves the door wide open for the next increase in December.
The decision was 8-1. Board member Hajime Takata proposed lifting the rate to 1.5%, arguing that with underlying inflation now at 2% the economy has entered a new phase and the bank should move faster towards a "neutral" rate that neither stimulates nor slows growth. The rest of the board outvoted him. Unlike some recent meetings, nobody voted the other way for a cut.
A first since 2013
The BOJ adopted its 2% inflation goal in January 2013 and spent most of the next decade failing to reach it, despite negative interest rates and massive bond buying. Its new quarterly Outlook Report now says underlying inflation, which strips out temporary swings such as fuel and fresh food, is broadly in line with the target, and that the risks to prices are skewed to the upside.
The bank said the cycle in which wages and prices push each other up is working at a level consistent with lasting 2% inflation, and that long-term inflation expectations among households and firms have settled around 2%. It still described financial conditions as accommodative, its way of saying that rates remain low compared with inflation.
Its statement repeated that further rate rises are appropriate "if its economic and inflation projections materialize", with the timing depending on data.
The new forecasts
The main changes were for the year to March 2028. The bank expects higher crude oil prices, rising prices of chips and other goods, and the weak yen to keep measured inflation clearly above 2% in the first part of its forecast period, before it eases back towards the target.
| Fiscal 2027 forecast (median) | July forecast | October forecast |
|---|---|---|
| Core CPI (excluding fresh food) | 2.4% | 2.6% |
| Core-core CPI (excluding fresh food and energy) | 2.6% | 2.7% |
| Real GDP growth | 0.8% | 0.7% |
The forecasts do not include the effect of the government's proposed cut in the consumption tax on food and drinks, which would lower measured inflation if it goes ahead.
Faster sales of the bank's stock pile
The board also voted unanimously to speed up the sale of the exchange-traded funds (ETFs) it bought during years of stimulus, which make it one of the largest owners of Japanese shares. From January 2027 it will sell about 860 billion yen a year at book value, up from about 330 billion yen. At market prices that is roughly 2.5 trillion yen a year, about 0.1% of stock-market trading.
The bank began selling in January 2026 and said the sales had gone smoothly without disturbing the market. At the new pace, it estimates the holdings would take about 43 years to sell, instead of about 112. Sales of real estate investment trusts stay at about 5 billion yen a year.
How markets reacted
There was no shock. Before the meeting, markets put the chance of a December hike at about 80%, and Friday's statement did nothing to lower that. The yen firmed slightly, with the dollar slipping for a third day to below 157.5 yen in Asian trading, also helped by a higher-than-expected Tokyo inflation reading released the same morning and lower US bond yields.
Analysts said the question is no longer whether the BOJ keeps raising rates but how far it goes. Several expect a move to 1.5% in December and a peak around 1.75%. A few said a cautious tone from Governor Kazuo Ueda could push the next step to January.
Why it matters beyond Japan
Japan's rates still sit far below those in the US, where the Federal Reserve held at 3.75–4% on Wednesday. That gap has kept the yen weak for years and encouraged investors to borrow cheaply in yen to buy higher-yielding assets abroad. Each BOJ rise narrows the gap, and a sudden unwinding of those trades shook global markets in August 2024.
For Pakistan and other importers in South Asia, a stronger yen would raise the cost of Japanese machinery and cars, while Japanese aid and project loans are priced in yen. A firmer yen would also make remittances from workers in Japan worth more at home.
Governor Ueda holds a news conference at 3:30 pm Tokyo time (11:30 am Pakistan time) on Friday. The bank's next policy meeting, the one markets are now watching for a rise to 1.5%, is in mid-December.
Questions people are asking
Did the Bank of Japan raise interest rates in October 2026?
No. The Bank of Japan kept its policy rate at 1.25% on October 30, 2026, in an 8-1 vote. One member, Hajime Takata, voted for a rise to 1.5%.
When is the next Bank of Japan rate hike expected?
Markets and many economists expect the next increase, to 1.5%, at the December 2026 meeting, after the bank said underlying inflation had reached its 2% target. Some analysts think it could slip to January.
