Bank of Japan hold rates steady

Source: Dukascopy Bank SA
The Bank of Japan decided to keep its benchmark interest rate steady at 0.5%, maintaining a cautious approach amid global uncertainties and fragile inflation momentum at home. Alongside holding rates, the BOJ announced it will slow the pace of its balance sheet reduction starting in fiscal year 2026. Until March 2026, the bank plans to reduce Japanese government bond purchases by 400 billion yen per quarter. From April 2026 onward, the tapering pace will be halved to 200 billion yen per quarter, targeting around 2 trillion yen per month by March 2027.



The decision to slow the exit from stimulus reflects growing geopolitical and economic risks, including the escalating Israel-Iran conflict and renewed U.S. tariff pressures. The BOJ aims to avoid tightening policy too quickly in order to maintain stability in bond markets while continuing to normalize monetary conditions after more than a decade of ultra-loose stimulus. Japan's core inflation currently sits at about 3.5 percent, above the bank's 2 percent target, largely driven by rising energy and food prices. However, underlying inflation and wage growth remain uncertain. Governor Kazuo Ueda emphasized that the BOJ will wait for more sustained evidence of demand-driven inflation before raising rates further.
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