Bank of Japan Holds Rate at 1.0%, Rejects Takata's 1.25% Proposal; Ueda Flags Underlying Inflation Risk Above
The Bank of Japan left its policy rate at 1% at its July meeting, with an 8-1 vote rejecting board member Hajime Takata's proposal to raise rates to 1.25%. Governor Kazuo Ueda said underlying inflation had a risk of exceeding 2%. The bank's outlook projected GDP growth of 0.6% in fiscal 2026, 0.8% in both 2027 and 2028, and core CPI of 2.5%, 2.4% and 2.0% respectively. Future tightening depends on Middle East developments, AI-related demand and exchange rates.
The Bank of Japan decided at its July monetary policy meeting to keep the policy rate unchanged at 1%. The decision was approved by the Monetary Policy Board by 8 votes to 1. Board member Hajime Takata's proposal to raise the policy rate to 1.25% was rejected after failing to receive a majority.
The meeting also published the latest outlook for the economy and inflation. Real GDP is projected to grow 0.6% year on year in fiscal 2026, 0.8% in fiscal 2027 and 0.8% in fiscal 2028. The fiscal 2026 and fiscal 2027 forecasts were revised up by 0.1 percentage point from April, reflecting the easing of Middle East tensions and robust demand related to artificial intelligence. Core CPI is projected at 2.5% in fiscal 2026, 2.4% in fiscal 2027 and 2.0% in fiscal 2028, with the fiscal 2026 projection revised down and the fiscal 2027 projection revised up. On the risk balance, the fiscal 2026 GDP outlook was changed from downside risk to balanced risk, while fiscal 2027 remains neutral. Inflation risks are tilted to the upside for fiscal 2026 and 2027, and balanced for fiscal 2028.
Future rate increases will be assessed on the basis of Middle East developments, the expansion of AI-related industries and the impact of exchange-rate fluctuations. Governor Kazuo Ueda said underlying inflation had a risk of exceeding 2%. The Bank of Japan's upcoming policy meetings are scheduled for September 17-18, October 29-30 and December 17-18.