BOJ keeps rates steady, declares victory in hitting price target

On Friday, October 30, the Bank of Japan maintained its interest rates at 1.25%, reaffirming its commitment to achieving a 2% price target after a 14-year struggle. The central bank also signaled vigilance against inflationary risks, hinting at potential rate hikes as early as December. With underlying inflation having reached approximately 2%, the BOJ emphasized its new, more hawkish stance, open to raising rates periodically.

The bank's policy shift aligns it with US and European counterparts who are considering rate hikes to counter inflationary pressures stemming from the AI boom and geopolitical tensions. Despite meeting the price target, the BOJ's focus is on ensuring underlying inflation stays around 2%. At their two-day meeting, the BOJ kept its policy rate unchanged, with hawkish member Hajime Takata dissenting and proposing a rate increase to 1.5%.

Additionally, the BOJ announced plans to increase the pace of its exchange-traded fund sales from 330 billion yen to 860 billion yen per year, starting in January. Markets are closely watching Governor Kazuo Ueda's post-meeting briefing for insights into future rate hikes. The BOJ revised its forecast for core consumer inflation for the fiscal year ending March 2028 to 2.6% from the previous 2.4%, reflecting a more optimistic outlook.