Bank of Japan Holds Rate at 1.25%, Flags Upside Inflation Risks and Continued Tightening Path
Written by AI from fxstreet.com's report. Not checked by a person.
The Bank of Japan kept its key interest rate unchanged at 1.25% at its October policy meeting, with all board members agreeing that underlying inflation has reached levels broadly consistent with the 2% target, though Governor Ueda stopped short of declaring that target fully achieved.
The Bank of Japan's Policy Board voted to maintain the short-term policy rate at 1.25% at the conclusion of its two-day October policy review, a decision that matched broad market expectations. Board member Takata was the sole dissenter. All board members agreed that underlying CPI inflation has now reached levels generally aligned with the bank's 2% price stability target. Even so, Governor Kazuo Ueda was careful to note it is not yet time to declare the inflation goal fully achieved, emphasising that inflation must be sustainably and stably anchored around 2% before that conclusion can be drawn. Ueda said the bank will continue raising the policy rate and adjusting the degree of monetary easing as economic activity, prices and financial conditions evolve, with the timing and pace of future moves guided by the likelihood of the baseline economic and price outlook being realised. The board highlighted FX movements, AI-driven demand and Middle East developments as risks warranting close monitoring. Unlike Japan's historical focus on downside price risks, the board flagged that inflation overshooting the 2% target is now a genuine concern, with risks to prices described as tilted to the upside. The board also approved plans to accelerate the pace of ETF sales to approximately ¥860 billion annually. The Japanese yen edged higher after the announcement, with USD/JPY trading at 157.40, down 0.20% on the day.
