BOJ Keeps Policy Unchanged; Timing of Next Rate Hike in Focus

Tokyo, Oct. 30 (Jiji Press)–The Bank of Japan kept its policy interest rate unchanged Thursday as it hopes to spend some more time assessing the impact of the U.S. high tariff policy, while raising its outlook for Japan’s gross domestic product growth for fiscal 2025. Toward the start of next year’s “shunto” labor-management wage negotiations, attention is being paid to when the central bank will implement an additional rate hike. The BOJ maintained the policy status quo for the sixth consecutive policy-setting meeting. At the two-day policy meeting through the day, the BOJ’s Policy Board voted seven to two to continue guiding the unsecured overnight call rate to around 0.5 pct. Two members, Hajime Takata and Naoki Tamura, proposed raising the target to around 0.75 pct, as they did at the previous meeting in September, but this was voted down. At a press conference later in the day, BOJ Governor Kazuo Ueda said that the central bank wants to gather more information on how the initial momentum of the 2026 shunto will be before deciding to raise the policy rate. “The probability of the (BOJ’s economic and price) outlook materializing is gradually increasing,” Ueda said. The governor said the BOJ will gather information on the negotiation stances of labor and management for the shunto. But he added that this does not mean he wants to wait until the final results of the negotiations become available. There is a possibility of the BOJ raising interest rates at the next policy meeting in December or the following meeting in January 2026 if momentum for wage hikes can be confirmed toward the start of the shunto talks, analysts said. Ueda avoided discussing the specific timing of a possible rate hike, however, saying the central bank has “no prejudgment about whether and when to raise the policy rate.” The BOJ last raised the policy rate in January this year, to around 0.5 pct from around 0.25 pct. Ueda noted that the downside risks from the U.S. tariff policy are becoming limited thanks to a Japan-U.S. tariff agreement struck earlier this year, but added that uncertainty persists. He said the BOJ wants to spend a little more time monitoring whether the high U.S. levies will affect Japanese firms’ moves to raise wages given that the tariffs are expected to erode corporate earnings. The latest policy-setting meeting was the first since Prime Minister Sanae Takaichi took office last week, and was attended by economic and fiscal policy minister Minoru Kiuchi as a government representative. A policy rate hike would need the understanding of the Takaichi administration, which is in favor of a loose monetary policy and the continuation of the Abenomics reflationary policy mix espoused by the late former Prime Minister Shinzo Abe. “We will always keep in close contact with the government and communicate sufficiently,” Ueda said. Takaichi has said that the government must be responsible for monetary policy. In its new quarterly Outlook for Economic Activity and Prices report, adopted at the latest monetary policy meeting, the Japanese central bank said that it “remains highly uncertain how overseas economic activity and prices will react to trade and other policies in each jurisdiction.” The BOJ raised its forecast for Japan’s fiscal 2025 real GDP growth to 0.7 pct from the July estimate of 0.6 pct. Meanwhile, it maintained the fiscal 2026 growth projection of 0.7 pct and the fiscal 2027 estimate of 1.0 pct. “With regard to the risk balance, risks to economic activity are skewed to the downside for fiscal 2026,” the bank said in the report. The inflation forecasts were also left intact, at 2.7 pct for fiscal 2025, 1.8 pct for fiscal 2026 and 2.0 pct for fiscal 2027. The bank also said in the report that if its forecasts prove to be accurate, it “will continue to raise the policy interest rate and adjust the degree of monetary accommodation” in accordance with improvement in economic activity and prices. END [Copyright The Jiji Press, Ltd.]