BOJ keeps rates steady, declares victory in hitting price target

On October 30, the Bank of Japan (BOJ) maintained its interest rates at 1.25% during a meeting, announcing triumph in its quest to achieve its inflation target after a 14-year endeavor. This decision suggested potential near-term rate hikes, possibly as early as December, to counteract inflation risks exacerbated by the AI boom and energy shocks from the Iran conflict.

The BOJ also announced plans to accelerate its sales of exchange-traded funds starting in January, increasing the annual volume from 330 billion yen to 860 billion yen. The central bank's quarterly outlook indicated that underlying inflation was currently consistent with its 2% target and expected to remain at that level. This shift in stance signifies a more hawkish policy, with the BOJ now focused on preventing inflation from surpassing the 2% mark.

The BOJ's decision to increase its ETF selling rate surprised market participants, yet analysts viewed it as a reflection of the central bank's growing confidence in the economic outlook. The BOJ revised up its forecast for core consumer inflation for the fiscal year ending in March 2028, predicting it to reach 2.6% from the previously projected 2.4%.