Tokyo, January 29th Electric – The Bank of Japan (BOJ) announced on January 23 that it will maintain its current policy rate at around 0.75% following a two-day monetary policy meeting, while raising its inflation forecast for the 2026 fiscal year (April 2026 to March 2027). The decision comes amid recent volatility in Japan’s bond and foreign exchange markets, driven by Prime Minister Sanae Takachi’s tax cut signals.

In its Economic and Price Outlook Report, the BOJ upgraded its 2025 fiscal year economic growth forecast to 0.9% and projected a 1.0% expansion in the 2026 fiscal year. Regarding inflation, the central bank maintained its 2025 fiscal year inflation forecast at 2.7% but raised the 2026 forecast from 1.8% to 1.9%. The BOJ noted that inflation may fall below 2% in the first half of 2026 as rice and other food prices decline, but will continue to rise slowly throughout the year.

Prime Minister Takachi’s recent tax cut signals have triggered sharp fluctuations in Japan’s markets, with the yen weakening sharply and long-term interest rates rising significantly. Market participants closely watched BOJ Governor Kazuo Ueda’s press conference for signals of renewed government bond purchases, but Ueda did not indicate plans to restart purchases, only reiterating that the central bank will proceed with interest rate hikes based on economic and price developments.

Analysts warn that the yen’s depreciation and rising long-term interest rates may persist in the near term, as the BOJ shows no signs of slowing its monetary normalization process. The central bank’s decision to hold rates steady and raise inflation forecasts reflects its confidence in Japan’s economic recovery, while acknowledging ongoing price pressures.