Bank of Japan Holds Rate Steady as Underlying Inflation Reaches 2% Target

The Bank of Japan left its uncollateralized overnight call rate unchanged at 1.25% on Friday, wrapping up a two-day policy meeting. Because the bank had already raised rates in September, analysts and investors broadly anticipated that it would hold steady this time.

Alongside the rate decision, the BOJ published its quarterly report on the economy and prices, which found that underlying inflation in Japan has now reached the central bank's 2% target. The BOJ has described its task going forward as anchoring inflation at that level rather than pushing it higher.

The 2% target was first established in 2013 under then-Governor Haruhiko Kuroda, who pledged to hit it within two years. It ultimately took 13 years. Japan's headline inflation had remained above 2% for 45 consecutive months from April 2022 through December 2025, yet the BOJ consistently maintained that underlying inflation — which strips out potentially temporary price swings — had stayed below the target throughout that period.

September marked the first time this year that inflation climbed back above 2%, according to government data released last week. Both the headline figure and the reading excluding volatile fresh food rose 2.1% year on year, the latter matching analyst forecasts and hitting its highest level since December of last year. The measure stripping out both fresh food and energy came in at 2.4%. Governor Kazuo Ueda was scheduled to hold a news conference later on Friday.