BoJ keeps policy rate unchanged at 1.25%, as expected
The vote leans hawkish. The dissent the market feared, a call for a cut, didn’t happen, and the only objection came from a member pushing for a hike now. That should support the yen near 157.8 per dollar and keep December pricing, about 80% going in, firmly in place. Short-dated Japanese government bond yields may edge higher. The faster ETF sales add modest supply to Japanese equities from 2027, a mild headwind for the Nikkei. The final read will depend on the Outlook Report and Ueda’s tone, with oil-driven inflation pressure keeping the case for tightening alive.
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Earlier:
- BOJ preview: Daiwa sees hold, but 2% inflation call could open door to December hike
- BoJ preview: MUFG sees hold but a 2% inflation call, with two dissenters the key yen risk
- BOJ to hold at 1.25%, but Ueda signals further hikes toward neutral
- BOJ seen lifting rates to 1.50% in December as 69% of economists expect a Q4 hike
- BOJ reportedly may upgrade inflation forecast, hold rates steady at next week’s meeting
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The Bank of Japan stood still as expected, but the only voice of dissent wanted to go faster, and the yen bears’ nightmare of a dovish split never showed up.
Summary:
- The BoJ held its short-term policy rate at around 1.25% in an 8-1 vote
- Takata dissented, proposing a hike to 1.5% on the view that underlying inflation has reached the 2% target
- No dovish dissent emerged, removing a key yen risk flagged before the meeting
- The board unanimously raised the pace of ETF sales to about 860 billion yen a year (book value) from about 330 billion
- The new ETF pace takes effect in January 2027; J-REIT sales are unchanged
- Focus turns to the Outlook Report and Ueda’s press conference
The Bank of Japan kept its short-term policy rate unchanged at 1.25% on Friday, as widely expected. The decision came with a hawkish dissent and a sharp increase in the pace at which the central bank will sell its holdings of exchange-traded funds.
The policy board voted 8-1 to keep guiding the uncollateralised overnight call rate at around 1.25%. Board member Hajime Takata voted against and proposed raising the rate to around 1.5%. He argued that with underlying consumer price inflation having reached the bank’s 2% price stability target, the situation had moved into a new phase. In his view, the bank needs to speed up the pace of bringing its policy rate closer to the neutral rate, so that it can respond nimbly. His proposal was defeated by a majority vote.
The vote removes one of the main risks flagged ahead of the meeting. Two board members who opposed September’s rate hike had been seen as possible dissenters in favour of a cut. Analysts had warned that such a move could undercut a hawkish message and weaken the yen. Instead, the only dissent came from the hawkish side.
The board also voted unanimously to more than double the pace of its ETF sales. The bank began selling the funds in January this year at about 330 billion yen a year on a book value basis, equivalent to around 0.05% of market trading value. From January 2027, it will sell at about 0.1% of trading value, or roughly 860 billion yen a year on a book value basis. On a market value basis, that equates to about 2.5 trillion yen a year. The bank said the sales had proceeded smoothly without a major market impact, while trading in the stock market had expanded. It retained the option to adjust or suspend sales temporarily in response to market conditions. It left its sales of Japanese real estate investment trusts unchanged at about 5 billion yen a year.
Markets were pricing about an 80% chance of a hike in December going into the meeting. Attention now turns to the quarterly Outlook Report, which analysts expect to effectively declare that underlying inflation has reached 2%. Governor Kazuo Ueda’s press conference later in the afternoon will be watched for any signal on the timing of the next move.
This article was written by Eamonn Sheridan at investinglive.com.