Bank of Japan raises economic growth forecast as it holds rates at 0.75%
A guide sign reading “Bank of Japan” is seen in Tokyo on July 31, 2024.
Kazuhiro Nogi | Afp | Getty Images
Japan’s central bank raised its economic growth forecasts on Friday and kept its key policy rate at 0.75% as the country prepares to hold elections.
Bank of Japan raises economic growth forecast It increased to 0.9% for the fiscal year ending March 2026, from 0.7% in October 2025, and also raised its GDP expansion outlook for fiscal 2026 to 1% from 0.7%.
Central Bank kept the benchmark interest rate constant An 8-1 split decision.After rising to a 30-year high last December ahead of early polls showing Prime Minister Sanae Takaichi may sharpen his advocacy of monetary easing and fiscal support.
Japan abandoned the world’s last negative interest rate regime and embarked on a path of policy normalization in March 2024, emphasizing raising rates based on the virtuous cycle of growth in wages and prices.
But the policy came under political pressure, with leading figures including Takaichi advocating lower interest rates to boost economic growth.
Separately, Japan announced December inflation figures; Headline inflation hit 2.1%, its lowest level since March 2022, but still remains above the BOJ’s 2% target for the 45th month in a row.
Analysts from Dutch bank ING Before the rate decision, “markets will listen closely to Governor Ueda’s assessment of how the recent weakness in the JPY could affect inflation,” he said.
Despite higher rates, Japanese bond yields have been rising and recently reached multi-decade highs, prompting capital outflows and weakening the yen. According to the BOJ, this situation arises as real rates remain negative and financial concerns increase.
Takaichi had planned a record $783 billion budget for the next fiscal year, starting April 1, on top of last year’s $135 billion stimulus package aimed at helping households with rising costs of living.
Pressured by rising yields due to fiscal concerns, the yen fell significantly against the dollar towards the end of last year, falling about 4.6% to its current level of 158.97 since Oct. 21, when Takaichi became prime minister.
This weakness led finance minister Satsuki Katayama to warn against “unilateral” movements in the currency.
On Friday, Katayama reportedly said that the bond market rout appeared to have receded and that he was watching financial markets closely “with a high sense of urgency.”
katayama He reportedly told reporters in Washington Last week he expressed “deep concern” about the depreciation of the yen, and Treasury Secretary Scott Bessent shared his view of the “unilateral” weakness in the Japanese currency.
Takaichi is preparing to dissolve Japan’s Lower House later in the day, as Japan heads to the polls in early elections on February 8.
“Forward guidance should continue to point to further rate hikes, but the BOJ will likely be more cautious in announcing specific timing in light of the February elections,” Howe Chung Wan, head of Asia Fixed Income at Principal Asset Management, said in a note on Thursday.
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