Bank of Japan holds rate at 1.25% and speeds up fund sales
The bank raises its fiscal 2027 inflation forecast to 2.6% and approves annual fund sales of about ¥860 billion from January 2027, subject to market conditions.
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The bank raises its fiscal 2027 inflation forecast to 2.6% and approves annual fund sales of about ¥860 billion from January 2027, subject to market conditions.
The Bank of Japan held its policy rate at around 1.25% on October 30, 2026, while raising its inflation forecast and approving faster sales of exchange-traded funds (ETFs), investment funds bought and sold on stock exchanges.
The hold leaves the short-term policy setting unchanged for Japanese borrowers and savers after September’s quarter percentage point increase, which took effect on September 24, 2026. The rate guides unsecured overnight lending between banks.
| Measure | Previous setting | October decision |
|---|---|---|
| Policy rate | Around 1.25% | Held at around 1.25% |
| Fiscal 2027 median inflation forecast, excluding fresh food | 2.4% in the July 31, 2026 projections | Raised to 2.6% |
| Annual ETF sales, at book value | About ¥330 billion | About ¥860 billion from January 2027 |
The rate decision passed by an 8–1 vote. Board member Hajime Takata proposed raising the rate to around 1.5%, but the board rejected his proposal.
The Bank of Japan said faster sales of its exchange-traded fund (ETF) holdings had shortened the disposal timetable from the previously estimated 112 years. Most analysts polled by Reuters expect another rate increase in December, but that is their forecast, not a central-bank commitment.
The bank raised its fiscal 2027 inflation forecasts from 2.4% to 2.6% excluding fresh food and from 2.6% to 2.7% excluding fresh food and energy. Further rate increases remain conditional on its economic and inflation projections materializing.
Governor Kazuo Ueda said underlying inflation—the broader trend behind price movements—had reached levels consistent with the bank’s 2% target. But sustainably and stably achieving that target remained unfinished. Both underlying inflation and people’s medium- to long-term inflation expectations still needed to become anchored around it.
The bank held rates because it needed more time to examine economic and price risks and financial conditions. Conditions remained supportive of borrowing and spending, while upside risks required vigilance against inflation exceeding the target.
The bank linked the higher fiscal 2027 inflation forecast to factors including the rise in crude oil prices since the summer, The Edge said.
The bank began selling its ETF holdings in January 2026 as it withdrew a large stimulus programme intended to revive growth and bring inflation to its 2% target. It said the existing sales pace had caused little market disruption, in a statement cited by Reuters in a report carried by CNA.
The bank approved raising annual ETF sales from about ¥330 billion to about ¥860 billion on a book-value basis, starting in January 2027.
With stock-market trading expanding, the bank raised the planned sales scale from about 0.05% to about 0.1% of market trading value. The annual yen amounts use book value—the value recorded in the bank’s accounts—rather than current market prices. Market conditions can prompt temporary adjustments to sales or a suspension.
Even at the faster pace, disposing of the holdings would take about 43 years, the bank estimated.
The yen briefly strengthened to 157.115 per dollar after the decision, then gave up those gains and traded at 157.67.
The Nikkei closed down 2.1% at 63,290.11 after falling as much as 3%. Reuters’ market account carried by CNA attributed the decline to chip-related stocks and concerns about the sustainability of spending on superintelligence (SI), and said the market was largely unmoved by the faster ETF-sales announcement.
Japan’s Finance Minister Satsuki Katayama said faster ETF sales would increase the bank’s profits and surplus payments to the government. A portion of the bank’s annual net profit, including profit from ETF sales, goes to government coffers.
Reuters said Prime Minister Sanae Takaichi’s administration was seeking non-tax revenue to finance its spending plans without relying too heavily on additional borrowing. Katayama said the government would consider how much extra revenue to expect and how to treat it while drafting the next fiscal year’s budget.
The next policy meeting is scheduled to end on 18 December 2026, with its rate decision still to be made. Ueda said the bank would assess its economic outlook and risks at each meeting, including the next one.
Those assessments will examine what is driving price changes, inflation expectations and the cumulative effect of earlier rate increases on financial conditions. The bank would adjust policy as appropriate to anchor underlying inflation around 2%.
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