BOJ Holds Benchmark Interest Rate Steady at 0.25% for Second Consecutive Time

"Political Instability in Japan Increases Pressure for Interest Rate Hikes"

The Bank of Japan (BOJ) kept its key interest rate unchanged for the second consecutive time on the 31st.

At the two-day Monetary Policy Meeting held until this day, the BOJ decided to maintain the short-term policy interest rate at 0.25%, following last month. Previously, after ending its negative interest rate policy for the first time in 17 years in March, the BOJ raised the rate from 0-0.1% to 0.25% at the July meeting.

[Image source=AFP Yonhap News]

Kyodo News analyzed that "due to high uncertainty in financial markets caused by the US presidential election and political turmoil in Japan, the BOJ seems to have judged that there is no need to rush an interest rate hike."

Earlier, Kazuo Ueda, Governor of the BOJ, who was in the US to attend the G20 Finance Ministers and Central Bank Governors Meeting, said at a press conference on the 24th in response to questions about raising interest rates, "There is some time for now," and added, "We will observe how the US economy affects Japanese inflation."

At that time, Governor Ueda stated that if economic and inflation forecasts materialize, the policy rate would be raised accordingly, but the market expects that additional rate hikes will be difficult for the time being. In the 'Economic and Price Outlook Report' jointly announced by the BOJ on this day, officials projected the year-on-year consumer price index (CPI) inflation rate excluding fresh food to be 1.9% for both the next fiscal year and fiscal year 2026.

Local public broadcaster NHK reported, "Following the general election on the 27th, where the ruling Liberal Democratic Party and Komeito failed to maintain a majority, there are observations that Japan's political instability is putting pressure on interest rate hikes."

Governor Ueda is scheduled to hold a press conference in the afternoon to explain the meeting results. Nihon Keizai Shimbun (Nikkei) noted, "Governor Ueda has repeatedly used the phrase 'there is time' regarding interest rate hikes, and if this expression disappears in the afternoon press conference, it could be interpreted as a signal that a rate hike is approaching."