BOJ holds interest rates steady, raises inflation forecast

The Bank of Japan (BOJ) maintained its key interest rate at 1.25% on Friday, but increased its inflation forecast for the fiscal year 2027 and indicated more monetary tightening as price pressures escalated. The decision was made by an 8-1 vote, with board member Hajime Takata dissuading the majority to raise the rate to 1.5%. According to the central bank's October Outlook for Economic Activity and Prices, underlying consumer price inflation was closely aligned with its 2% price stability target and projected to remain near that level.

Nevertheless, the bank cautioned that risks to the inflation outlook were primarily positive. The BOJ revised its forecast for the consumer price index, excluding fresh food, for fiscal 2027 upwards to 2.6% from 2.4% in its prior projection, attributing the rise to the increase in crude oil prices since the summer. Fiscal 2027 spans from March 2027 through March 2028.

The BOJ affirmed its commitment to raising its policy rate and modifying the magnitude of monetary accommodation in response to economic activity, price, and financial conditions developments, while evaluating the suitable timing and rate of additional adjustments.