According to the BoJ statement, the bank kept the policy rate constant at 0.75 percent, in line with expectations, after the two-day monetary policy meeting. While the decision was taken with 3 votes against 6, BOJ members Hajime Takata, Junko Nakagawa and Naoki Tamura voted for the interest rate increase.
The bank increased its core inflation expectation for 2026 from 1.9 percent to 2.8 percent.
While Hajime evaluated that the risks of price increases in Japan are on the upside due to the second round effects arising from foreign developments, Junko Nakagawa reported that the uncertainties in the Middle East continue and, considering the economic developments, the risks to price increases under supportive financial conditions are on the upside.
Naoki Tamura also stated that with inflation risks becoming significantly upward, the Bank should set its policy interest rate as close to the neutral rate as possible.
In the statement, it was stated that rising crude oil prices due to developments in the Middle East will reduce company profits and household real incomes through the deterioration in the terms of trade, and therefore the growth rate of the country’s economy is expected to slow down in 2026.
However, with the influence of various measures of the government and developments such as supportive financial conditions and the continuation of high profit levels in the corporate sector, it was stated that the economy will continue to grow moderately, although it may lose momentum, and that growth is expected to gain momentum again as of 2027, as the reflections of the rise in crude oil prices decrease and the income-expenditure cycle gradually intensifies.
“It will take into account the timing and pace of adjustment while closely monitoring the impact of the future course of the situation in the Middle East on Japan’s economic activity and prices and examining the likelihood of the baseline scenario of the outlook for economic activity and prices occurring and risks to the outlook,” the statement said. It was said.
Considering that the core CPI is approaching 2 percent and real interest rates are at very low levels, the bank will continue to increase the policy interest rate and adjust the degree of relaxation in monetary policy in response to developments in economic activities and prices as well as financial conditions. “In line with the price stability target of 2 percent, the BoJ will conduct monetary policy as deemed appropriate to achieve this target in a sustainable and stable manner.” The statement was included.
