Summary

• BoJ raised policy rate to 0.75% as expected
• Decision was unanimous, but wording saw dissent
• Real rates remain significantly negative

The Bank of Japan raised its short-term policy rate by 25 basis points to 0.75%, delivering a widely anticipated move that takes borrowing costs to their highest level in around three decades. The decision was approved by a unanimous vote, underscoring broad agreement among policymakers that conditions now justified a further step toward normalisation.

Despite the hike, the BoJ was careful to emphasise that monetary conditions remain accommodative, repeatedly highlighting that real interest rates are expected to stay significantly negative even after the policy adjustment. Officials said the move should be seen as part of a gradual and cautious process rather than a shift toward restrictive policy.

In its statement, the central bank said it would continue to raise the policy rate if the economy and prices move in line with its forecasts, signalling conditional openness to further tightening. Policymakers added that the likelihood of achieving the baseline scenario has been rising, reflecting growing confidence that inflation dynamics are becoming more durable.

The BoJ reiterated that it will conduct policy from the perspective of sustainably and stably achieving its 2% inflation target, while avoiding excessive tightening that could destabilise financial conditions. Officials said wages and inflation are likely to continue rising moderately in tandem, reinforcing the narrative that price pressures are increasingly supported by domestic demand rather than temporary cost factors.

However, the meeting also revealed nuances within the Policy Board. Board member Takata opposed the description of the inflation outlook, arguing that the rate of increase in CPI, including underlying measures, had already generally reached the price stability target. Separately, board member Tamura opposed the wording on underlying CPI inflation and said it was likely to be broadly consistent with the target from the middle of the projection period.

These objections did not extend to the rate decision itself but highlight an emerging debate over how close Japan is to achieving price stability on a sustained basis, a discussion that could shape the pace of future tightening.

From a market perspective, the decision was said to be fully priced, limiting immediate volatility in the yen and JGBs. Despite this the yen fas dipped, with USD/JPY popping above 158.00. Focus is expected to remain on guidance, wage trends and how confidently the BoJ views inflation sustainability heading into 2026.

Overall, the message was clear: normalisation is progressing, but the Bank remains committed to moving slowly, carefully and data-dependently, with no preset path for further rate increases.

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Due at 0630 GMT is Bank of Japan Governor Ueda’s news conference