BoJ maintains its short-term interest rate at 0.75%, as expected; 8-1 vote split with Takata voting for a 25bps hike

Monetary policy 

• With the price stability target of 2 percent, it will conduct monetary policy as appropriate, in response to developments in economic activity and prices as well as financial conditions, from the perspective of sustainable and stable achievement of the target.
• Given that real interest rates are at significantly low levels, if the aforementioned outlook for economic activity and prices is realised, the Bank will continue to raise the policy interest rate and adjust the degree of monetary accommodation.

Economic activity

• Financial conditions have been accommodative.
• Private consumption has been resilient against the background of an improvement in the employment and income situation, although it has been affected by price rises.
• Business fixed investment has been on a moderate increasing trend.
• Corporate profits have remained at high levels on the whole, although downward effects due to tariffs have been seen in manufacturing.
• Exports and industrial production have continued to be more or less flat as a trend, while they have been affected by the increase in US tariffs.
• Japan’s economy is likely to continue growing moderately, with overseas economies returning to a growth path.
• 2025 and 2026 real GDP forecasts rose, mainly due to the effects of the government's economic measures.

Inflation / CPI

• Inflation expectations are likely to rise moderately and be at around 2 percent in the second half of the projection period.
• Medium- to long-term inflation expectations have risen moderately.
• Thereafter, underlying CPI inflation and the rate of increase in the CPI (all items less fresh food) will increase gradually and, in the second half of the projection period, be at a level that is generally consistent with the price stability target.
• Underlying CPI inflation will continue rising moderately.
• However, it is likely that the mechanism in which wages and prices rise moderately in interaction with each other will be maintained.
• The year-on-year rate of increase in the CPI (all items less fresh food) is likely to decelerate to a level below 2 percent in the first half of this year.
• The year-on-year rate of increase in the CPI (all items less fresh food) has been at around 2.5 percent recently.

Wages/labour market

• Firms in many industries have started to face labour supply constraints
• The growth in nominal wages is projected to remain relatively high.
• It is likely that a wide range of firms will continue to raise wages steadily in this year’s annual spring labour-management wage negotiations.
• Labour market conditions are likely to tighten further as the economy improves.

Risks

• With regard to the risk balance, risks to both economic activity and prices are generally balanced.
• Attention continues to be warranted on developments in geopolitical risks.
• Regarding the Chinese economy, there remain high uncertainties surrounding the future pace of growth.
• Regarding the US economy, attention is warranted on the impact of tariffs on employment and income formation through a deterioration in corporate profits.
• Attention continues to be warranted on the possibility that trade policies announced so far could push down the global economy.
• Risks to the outlook include developments in overseas economic activity and prices under the impact of trade and other policies in each jurisdiction.

FX:

• Attention is due on FX being more likely to affect prices.
• Moves could affect underlying CPI inflation through changes in inflation expectations.
• Exchange rate developments are, compared to the past, more likely to affect prices.
• The second risk is future developments in foreign exchange rates and import prices, including international commodity prices, and the extent to which such developments will spread to domestic prices.
• Developments in financial and foreign exchange markets are a risk to Japan’s economic activity and prices.

BoJ Outlook Report:

Real GDP:    

• Fiscal 2025 median forecast 0.9% (prev. 0.7%)
• Fiscal 2026 median forecast 1.0% (prev. 0.7%)
• Fiscal 2027 median forecast 0.8% (prev. 1.0%)

Core CPI    

• Fiscal 2025 median forecast 2.7% (prev. 2.7%)
• Fiscal 2026 median forecast 1.9% (prev. 1.8%)
• Fiscal 2027 median forecast 2.0% (prev. 2.0%)