As widely expected, the central bank maintained short-term interest rates at 0.5%.
Board members Naoki Tamura and Hajime Takata dissented to the decision, repeating their proposals made in September to raise rates to 0.75%.
In a quarterly outlook report released on Thursday, the board slightly revised up its economic growth forecast for the current fiscal year ending in March 2026. It also upgraded its inflation forecast for fiscal 2026.
The BOJ also said it expects underlying inflation to hit 2% in the latter half of the three-year projection period through March 2027, retaining language in the previous report in July.
It maintained its view that risks to the inflation outlook were “roughly balanced.” “If our economic and price projections materialise, we will continue to raise our policy rate and adjust the degree of monetary support in accordance with improvements in the economy and prices,” the BOJ said in the report. Investors will focus on any clues from Governor Kazuo Ueda‘s post-meeting news briefing on the timing and pace of future rate hikes.
The board has been split between hawks who see conditions ripe to raise rates, and doves like Ueda who prefer awaiting more data on the extent of damage from slowing U.S. growth and President Donald Trump’s tariffs.
Uncertainty over the impact of tariffs also overshadowed discussions at the U.S. Federal Reserve, which delivered another interest rate cut on Wednesday but by a split vote. Fed Chair Jerome Powell pointed to “strongly differing views” among his colleagues about the appropriate future policy path.
NEW POLITICAL CHALLENGES FOR BOJ
Aside from looming overseas risks, politics have complicated the BOJ’s decision. Markets reduced bets on an October rate hike after last week’s inauguration of new Prime Minister Sanae Takaichi, who is known as an advocate of loose monetary policy.
With inflation exceeding the BOJ’s target for well over three years, however, a majority of economists polled by Reuters expect the BOJ to raise rates either in October or December. Nearly all project a hike to 0.75% happening by end-March.
Hawks in the BOJ board may also find an ally in U.S. Treasury Secretary Scott Bessent, who called for speedier rate hikes to avoid weakening the currency too much.
The BOJ last year exited a decade-long, massive stimulus programme and raised rates to 0.5% in January on the view Japan was close to durably hitting its 2% inflation target.
While Ueda has signaled the bank’s readiness to keep raising rates, he has preferred treading cautiously on concerns the hit from U.S. tariffs could derail a cycle of rising wages and prices – a prerequisite for policy normalisation.