The Bank of Japan (BOJ) decided to maintain its short-term policy interest rate (the overnight call rate) at 1.25% during its monetary policy meeting on Friday (October 30, 2026). The decision, which aligned with market expectations, was reached by an 8-to-1 vote. Although it opted against a rate hike, the Japanese central bank signaled that further monetary tightening remains a possibility, as inflationary pressures have yet to fully subside.
During the meeting, BOJ board member Hajime Takata proposed a 25-basis-point rate hike to 1.50%, but the proposal failed to secure majority support. This divergence in views suggests that some policymakers believe additional tightening measures are necessary to ensure price stability. The BOJ also raised its inflation projections, noting that Japan’s underlying inflation has reached the 2% target range—leaving the door open for a potential rate hike at the next meeting.
Meanwhile, the decision to hold rates steady reflects the BOJ’s cautious approach to balancing inflation control with economic growth. Rising energy costs—driven by tensions in the Middle East—along with a weaker yen and global economic uncertainty, remain key challenges. The BOJ must ensure that higher borrowing costs do not place excessive strain on household consumption or business activity. Consequently, the future direction of policy will depend on price trends, economic growth, and conditions within Japan’s financial markets.
Investors will now turn their attention to the press conference held by BOJ Governor Kazuo Ueda, as well as the prospects for a rate hike in December. Should the BOJ strengthen its signal toward tightening, the yen could potentially strengthen against the U.S. dollar, while the Japanese stock market might face pressure from rising financing costs. Conversely, if the BOJ emphasizes the need to keep rates unchanged for longer, the yen risks weakening once again. In our view, the BOJ's decision this time is a waiting step that remains accompanied by a hawkish tendency, so that the next direction of the yen is determined more by signals of interest increases rather than the decision to maintain interest rates itself.