Bank of Japan Raised Interest Rate to 1.25%, Meets Again on October 29–30
Key Facts
The Bank of Japan will hold its next monetary policy meeting on October 29 and 30, after raising its overnight rate guidance to around 1.25% in September. The board made the decision on September 18 by a 7-2 vote, with the change effective from September 24. The upcoming meeting will be the board’s first opportunity to assess new data since that decision. Among the indicators ahead of the meeting, core inflation accelerated in September, while economic activity continued to expand in October. Board members’ remarks also showed that further rate hikes remain on the table, although they did not specify when the next move might come.
The core consumer price index, which excludes fresh food, rose 2.1% year over year in September, compared with a 1.7% increase in August. September’s reading matched the market consensus but accelerated from the previous month. Another measure, which excludes fresh food and fuel, rose 2.4% year over year, following a 1.9% increase in August. The two readings reflect continued price pressures across different measures, with the core index above 2%. The Bank of Japan said in its summary of opinions from the September meeting that some board members saw a need to accelerate the pace of rate increases if signs emerged of prices deviating to the upside.
Reuters attributed price pressures to higher fuel costs linked to the ongoing conflict in the Middle East, rising import prices driven by the weak yen, and strong demand-related pressures tied to artificial intelligence. The report said these factors limited the impact of government fuel subsidies. Meanwhile, Japan’s composite output index stood at 52.3 points in October for a second consecutive month, indicating continued economic growth. These indicators present a picture of rising prices alongside economic growth, both of which policymakers monitor when assessing the rate path. No services index figure was confirmed in the available evidence, while the composite index reading points to broader activity growth.
In a Reuters poll published on October 21, economists expected the interest rate to reach 1.50% in the fourth quarter, and most of those who specified a month favored December for the increase. That remains an estimate of economists’ views, not a measure of market pricing. Bank of Japan board member Junko Koeda said the bank should not become overly cautious about raising rates, citing significant upside risks to inflation. She also said Japan’s neutral interest rate is well above 1%, leaving room for further increases in the future. These remarks are consistent with the September meeting summary’s reference to the possibility of accelerating the pace if signs emerge of prices deviating to the upside.
In currency markets, the yen fell 0.38% to 157.48 per dollar on September 21, following the Bank of Japan’s rate increase, as investors watched for possible intervention by authorities in the foreign exchange market. This places the September decision in the context of the currency market’s sensitivity to monetary policy moves and developments in the yen. The bank is scheduled to publish its October meeting decision and its baseline outlook for the economy and prices on October 30. The full Outlook Report is due on November 2. These dates will provide details of the bank’s assessment of the economy and prices after the meeting.