TOKYO–Japan’s central bank held rates steady on Friday, avoiding a surprise that would have jolted markets already unnerved by fiscal anxiety.
The Bank of Japan’s first meeting of the year took place against a dramatic backdrop of bond market gyrations, worries about government policies and a volatile yen.
Given that, it will come as some relief that policymakers at the BOJ continued a cautious approach to tightening as they gauge the effects of the last interest rate hike, and weigh the risks of a shifting fiscal landscape.
Following a landmark move last month to raise the rate to 0.75%–the highest level in three decades–Friday’s hold was widely anticipated by markets and economists alike.
Signals from the BOJ itself pointed in that direction too, with Gov. Kazuo Ueda saying that the bank is committed to continuing tightening under the right economic and price conditions.
In its quarterly outlook report, the central bank stuck to the view that underlying inflation, which strips out volatile and temporary factors, will reach its 2% target in the near future.
The bank’s policy board expects consumer inflation, excluding fresh food prices, to reach 2.7% in the year ending March 2026. It projects that core consumer prices will rise 1.9% in the year ending March 2027 and climb 2.0% the following year.
Its outlook for the Japanese economy was broadly steady, with growth tipped at 0.9% in the current fiscal year, compared with the 0.7% expansion projected previously. It forecasts growth of 1.0% in the year ending March 2027 and 0.8% the following year.
However, those forecasts may change once more details of the government’s fiscal policies that rattled local bond markets and reverberated across U.S. Treasuries and other debt markets become available.
As she confirmed plans to call a snap election, Prime Minister Sanae Takaichi said her party is mulling a plan to suspend the national sales tax on food and beverages for two years as an inflation-relief measure. But without details on how the measure will be funded, uncertainty has gripped the more pessimistic corners of the market.
BOJ officials are closely monitoring political developments as the upcoming election fuels debate over potential tax cuts.
Write to Megumi Fujikawa at [email protected]
