Japan Interest Rate

The Bank of Japan kept its key short-term interest rate unchanged at 0.75% at its first policy meeting of 2026, maintaining borrowing costs at their highest level since September 1995, ahead of February's snap election. The widely expected decision was backed by an 8–1 vote, with board member Hajime Takata calling for a hike while others viewed risks to the economic and price outlook as broadly balanced. Policymakers reiterated that rates could rise further, following two hikes in 2025, if activity and inflation evolve in line with projections. In its quarterly outlook, the board raised its FY 2025 GDP growth to 0.9% from 0.7%, citing support from a recent trade deal with Washington and Tokyo’s large stimulus package, which includes subsidies for electricity and gas bills, expanded local government grants, and higher defense spending. The FY 2026 GDP forecast was also lifted to 1.0% from 0.7%, while the core consumer inflation outlook for FY 2026 was nudged up to 1.9% from 1.8%.