The Bank of Japan left policy unchanged at 0.75% at its first meeting this year, the board voting eight to one. japan central bank interest rate held at 0.75% while forecasts for growth and inflation were raised. Board member Hajime Takata called for a hike, while other members judged risks to the economic and price outlook broadly balanced.
In its quarterly outlook the board raised GDP forecasts, lifting FY2025 growth to 0.9% from 0.7% and FY2026 to 1.0% from 0.7%. The BoJ also nudged its core consumer inflation outlook for FY2026 to 1.9% from 1.8%, citing support from a recent trade deal with Washington and Tokyo’s large stimulus package.
Policymakers reiterated that rates could rise further if activity and inflation evolve in line with projections, Governor Kazuo Ueda said. They noted that real rates remain deeply negative despite recent tightening, and that policy decisions should be made on a meeting‑by‑meeting basis.
Markets, Politics And Risks
Markets have reacted sharply to domestic fiscal plans and political moves, with Japanese bonds suffering a severe sell-off. The 40‑year yield exceeded 4% and the 30‑year approached about 3.9%, while the 10‑year yield rose to roughly 2.25%, the highest since 1999, intensifying market concerns.
Prime Minister Sanae Takaichi’s announcement of snap elections and a pledge to suspend the 8% consumption tax on food for two years has fuelled fiscal fears. The proposed food tax cut represents roughly ¥5tr in annual revenue, and the government unveiled a spending package of about ¥21.5tr, alongside plans for a record $783 billion budget and a $135 billion stimulus.
Concern spread internationally because Japan holds over $1tr in US Treasuries. US Treasury official Scott Bessent said it is "very difficult to disaggregate the market reaction from what is going on endogenously in Japan." Finance Minister Satsuki Katayama warned against one‑sided currency moves as the yen weakened to about 158.97, and State Street strategist Masahiko Loo said a gradual normalization path still points to further hikes over coming years.
