The Bank of Japan (BOJ) kept its benchmark interest rate unchanged at 0.5% on Thursday, aligning with market expectations as the central bank navigates mounting economic uncertainty and a shifting fiscal landscape. Despite holding rates steady, the BOJ reaffirmed its readiness to raise borrowing costs further if inflation and growth trends remain consistent with forecasts.
In a 7-2 vote, board members Takata Hajime and Tamura Naoki dissented, urging for a 25-basis-point hike to 0.75%, citing elevated inflation risks and the need to move closer to a “neutral” rate. The BOJ also slightly upgraded its 2025 outlook for GDP and consumer inflation but trimmed its projections for 2026. The bank now expects GDP growth of 0.6% to 0.8% in 2025, up from 0.5% to 0.7%, and inflation of 2.7% to 2.9%, compared to the previous forecast of 2.7% to 2.8%.
The central bank described Japan’s growth as “modest,” constrained by global headwinds and weakening corporate profits, though accommodative financial conditions are expected to offer support. For 2026, GDP is projected to slow to 0.6%–0.8%, down from earlier estimates of 0.7%–0.9%, with inflation seen hovering near the 2% target.
Recent data showing persistent core inflation above the BOJ’s 2% goal suggest further tightening could be on the horizon. However, the newly elected Prime Minister, Sanae Takaichi, is expected to push for fiscal expansion and looser monetary conditions to support Japan’s fragile economy.
Following the announcement, the yen weakened slightly, with USD/JPY rising 0.2%, while Japanese stocks remained resilient — the Nikkei 225 gained 0.4%, marking another record high.


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