Bank of Japan Holds Interest Rate at 1.25% as Inflation Risks Rise

Japan's central bank left its short-term policy interest rate unchanged at 1.25% on Friday, October 30, 2026, following a two-day monetary policy meeting in Tokyo. The Bank of Japan voted 8–1 to maintain the rate, with policy board member Hajime Takata favouring an increase to 1.5%.

The decision preserves the borrowing-cost level reached after a rate increase in September. It does not amount to a new rate rise. The central bank nevertheless indicated that it remains prepared to raise rates further if economic activity and prices develop as expected. It also revised its inflation outlook upward, reflecting concern about sustained price pressures.

The bank said underlying inflation is now broadly consistent with its longstanding 2% price-stability objective. That assessment marks a change in the institution's emphasis: after years of trying to generate durable inflation, officials are increasingly focused on preventing inflation from remaining above target. A policy rate of 1.25% remains high by Japan's recent historical standards, although the bank's assessment of the appropriate future level is conditional rather than a commitment to a particular date.

Takata's dissent illustrates the debate within the nine-member board over how quickly monetary policy should tighten. His proposal for a 1.5% rate did not receive majority support, so the official target remains 1.25%. The decision came against a backdrop of rising import and energy costs and uncertainty about how previous increases are affecting household spending and business borrowing.

Financial markets will scrutinise Governor Kazuo Ueda's scheduled briefing later on Friday for more detail about the bank's outlook and the conditions for another move. Expectations of a future increase are forecasts, not decisions already taken. The immediate outcome of the October meeting is a rate hold accompanied by a stronger warning about inflation risks.