Bank of Japan leaves benchmark rate at 1.25%, as expected

(Sharecast News) - The Bank of Japan left its benchmark interest rate on hold on Friday at 1.25%, as expected, following a 25 basis point hike in September. The decision was taken with an 8-1 vote, with board member Hajime Takata voting for a 1.5% hike.

The BoJ also lifted its inflation forecast for fiscal year 2027 to 2.6% from 2.4%, with the 'core-core' inflation rate increased to 2.7% from 2.6%. The 'core-core' inflation excludes prices of fresh food and energy.

Danske Bank said: "The meeting marks a landmark, as the BoJ now judges underlying inflation to be 'generally consistent' with its 2% target. The efforts initiated in 2013, when the 2% target and heavy QE were introduced, have thus finally paid off, and Japan is officially free of deflation.

"The core inflation forecasts for 2027 and 2028 were lifted by 0.1pp to 2.7% and 2.3%, respectively. At the same time, BoJ highlighted the risk of future inflation overshooting, clearly signalling that more rate hike will come, and we expect the next one in December. The bank also decided to increase its pace of ETF selling, and it will now take about 43 years to unwind its holdings, versus the previously estimated 112 years."