Bank of Japan holds rates at 1.25% as inflation finally meets its 2% target

The Bank of Japan held its key interest rate at 1.25% on Friday, 30 October, at the end of a two-day policy meeting. The rate remains at its highest level since 1995.

The decision was not unanimous. The bank’s nine-member Policy Board voted 8–1 to hold rates, with board member Hajime Takata dissenting. Takata wanted an immediate rise to 1.5%, arguing that underlying inflation had reached the bank’s target and that it should move faster towards a neutral rate.

The bigger news was the bank’s new judgement on inflation. It said underlying inflation was now “generally consistent” with its 2% target — the first time it has made that assessment since adopting the target in 2013. Until now, it had described underlying inflation as merely “approaching 2 percent”.

The bank also raised its inflation forecast for the fiscal year 2027 to 2.6%, up from 2.4%, and lifted its “core-core” forecast — which strips out fresh food and energy prices — to 2.7% from 2.6%. It warned that inflation could run above 2%, saying firms were increasingly raising wages and prices. The yen strengthened after the decision, according to Reuters.

Why it matters

Japan spent decades fighting falling prices, so reaching its 2% inflation target is a landmark moment for the world’s fourth-largest economy. It also changes what comes next: the bank is no longer trying to push inflation up, but to keep it from overshooting.

The decision capped a week in which the US Federal Reserve and the European Central Bank also left their rates unchanged. For households and businesses in Japan, higher rates over time would mean more expensive borrowing, but also potentially better returns on savings.

What happens next

Attention now turns to the bank’s December meeting. A CNBC survey of 16 economists taken before the decision found that all of them expected the bank to prepare the ground for a rate rise in December or January. Thirteen of them expected rates to peak at between 1.75% and 2% by around mid-2027.

That is only a survey of expectations, not a promise. The bank has said the timing of any further rise will depend on the data, including wages and prices.

Sources

• https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2026/k261030a.pdf (Bank of Japan, 30 October 2026)
• https://krro.com/2026/10/29/boj-keeps-interest-rates-steady-signals-further-rate-hikes/ (Reuters, 30 October 2026)
• https://asiainsiders.net/boj-holds-rates-as-underlying-inflation-aligns-with-2-target-for-first-time-since-2013/ (CNBC, 30 October 2026)

This article is for general information and education only. It is not legal or financial advice.