Bank of Japan Holds Rates at 1.25% in an 8-1 Vote and Says Underlying Inflation Now Matches Its 2% Target

The Bank of Japan left its short-term policy rate unchanged at around 1.25% on Friday, October 30, 2026, while stating for the first time that underlying inflation in Japan has reached a level generally consistent with its 2% price stability target. The decision on the guideline for money market operations passed by an 8-1 majority vote, according to the central bank's Statement on Monetary Policy, which was released at 12:02 p.m. Tokyo time after a two-day meeting.

The 1.25% rate is the highest since 1995, CNBC reported, and the bank's assessment marks the first time it has judged underlying inflation to be in line with the 2% goal since it adopted the target in 2013.

One dissent in favor of a hike

Board member Hajime Takata voted against the decision and proposed raising the overnight call rate target to around 1.5%. According to the statement, Takata argued that with underlying CPI inflation having reached the price stability target, the situation had shifted to "a new phase" in which the bank needs to step up the pace of bringing its policy rate closer to the neutral interest rate. His proposal was defeated by a majority vote.

Governor Kazuo Ueda, Deputy Governors Himino Ryozo and Uchida Shinichi, and board members Tamura Naoki, Koeda Junko, Masu Kazuyuki, Asada Toichiro and Sato Ayano voted for the hold.

What the outlook report says

In its quarterly Outlook for Economic Activity and Prices, the Policy Board said the year-on-year rise in the consumer price index excluding fresh food is likely to accelerate to "a level clearly above 2 percent," driven by higher crude oil prices, rising semiconductor prices tied to global AI-related demand and the yen's depreciation, before slowing toward around 2% in the second half of the projection period.

The board's median forecasts were:

• Fiscal 2026: real GDP growth of 0.7% and core CPI (all items less fresh food) of 2.5%.
• Fiscal 2027: real GDP growth of 0.7% and core CPI of 2.6%, up from 2.4% in the July report; CPI excluding fresh food and energy of 2.7%, up from 2.6%.
• Fiscal 2028: real GDP growth of 0.8% and core CPI of 2.0%.

The bank said risks to economic activity are generally balanced, while risks to the price outlook are "skewed to the upside." It warned that medium- to long-term inflation expectations could rise and push underlying inflation above the target, "given that firms' behavior has been shifting more toward raising wages and prices." The report also assumes Dubai crude falling from around $105 a barrel toward about $70 by the end of the projection period, based on futures markets, and notes that its forecasts exclude a proposed temporary cut in the consumption tax on food and beverages now being deliberated in the Diet.

Faster sales of ETF holdings

In a unanimous vote, the board also decided to speed up sales of the exchange-traded funds it accumulated during years of monetary easing. Starting in January 2027, the bank will sell ETFs at a pace of about 860 billion yen a year on a book value basis, roughly 0.1% of market trading value, up from about 330 billion yen a year since sales began in January 2026. Converted to market value, the new annual pace would be about 2,460 billion yen, the statement said. The pace of sales of Japanese real estate investment trusts stays at about 5 billion yen a year.

At the new pace it will take about 43 years to complete the sales, compared with a previous estimate of 112 years, Reuters reported.

Ueda: goal not yet met "sustainably and stably"

At his post-meeting news conference, Ueda said the bank's goal has not yet been reached in full. "Our goal is to sustainably and stably achieve our price target. In that sense, we haven't reached our goal yet," he said, according to excerpts translated by Reuters. "That doesn't mean we will just sit and wait. We will adjust monetary policy as appropriate so that underlying inflation becomes anchored around 2 per cent."

Ueda added that "the pace (of future rate hikes) will depend much on upcoming data" and that the bank "can't decide in advance how many months we will spend each time before raising rates." He said the bank will look at its baseline scenario and risks "at each policy meeting including at our next meeting." Nikkei Asia similarly reported that Ueda emphasized the bank does not believe its price goal has yet been achieved sustainably and stably.

Economists' expectations and market moves

A CNBC survey of 16 economists conducted before the meeting found that all of them expected the BOJ to set the stage for a rate hike in December or January, and 13 respondents expected a terminal rate of 1.75% to 2% by around mid-2027. Krishna Bhimavarapu, APAC economist at State Street Investment Management, described the outcome to CNBC as a "hawkish hold."

As of about 7:03 a.m. ET, the dollar was trading near 157.20 yen, down about 0.3% on the day, according to Yahoo Finance data. Japan's Nikkei 225 closed at 63,290.11, down about 2.1%, in a session in which AI-linked stocks fell across Asia.