Full Statement from the Bank of Japan: Interest Rates Remain Unchanged, Two Committee Members Propose a 25 Basis Point Rate Hike

On September 19, the Bank of Japan announced, by a vote of 7 to 2, to keep the benchmark interest rate unchanged at 0.5%, marking the fifth consecutive meeting with no change, in line with market expectations. In addition, the bank also decided to begin selling its holdings of ETFs.

Bank of Japan Policy Board members Hajime Takata and Naoki Tamura proposed raising the short-term interest rate target from 0.50% to 0.75%. Both believe that as the risk of rising prices tilts more to the upside, the central bank should move the policy rate slightly closer to the neutral rate.

Full Policy Statement

At today's monetary policy meeting, the Bank of Japan Policy Board decided by a majority vote of 7 to 2 to adopt the following guidelines for money market operations until the next meeting: The Bank of Japan will guide the uncollateralized overnight call rate to remain around 0.5%.

Regarding the Bank of Japan's holdings of Exchange-Traded Funds (ETFs) and Japanese Real Estate Investment Trusts (J-REITs), the committee unanimously decided to sell these assets to the market in accordance with its basic principles for disposal, which include avoiding destabilizing effects on financial markets. The scale of sales will, in principle, be roughly equivalent to the scale of "stock purchases from financial institutions".

The Japanese economy is recovering moderately overall, but some sectors remain somewhat weak. Overseas economies are also growing moderately overall, but some areas are showing weakness due to the impact of trade and other policies in various economies. Exports and industrial production have remained generally stable, but due to the U.S. imposing tariffs, there was a surge in shipments ahead of time followed by a subsequent decline in reaction. Corporate profits remain generally high, but the manufacturing sector has been negatively affected by tariffs. Corporate capital investment continues to rise moderately.

Supported by improvements in employment and income conditions, private consumption has remained resilient, despite factors such as rising prices dampening consumer confidence. Residential investment is relatively weak, and public investment is generally flat. The financial environment remains accommodative. In terms of prices, as wage increases continue to be passed on to sales prices, and with the impact of rising prices for foods such as rice, the year-on-year increase in the Consumer Price Index (CPI, excluding fresh food) has recently remained in the 2.5% to 3.0% range. Inflation expectations are rising moderately.

Looking ahead, Japan's economic growth may slow due to the deceleration of overseas economies caused by trade and other policies in various economies, as well as factors such as declining corporate profits dragging down the domestic economy. However, accommodative financial conditions and other factors are expected to provide support. Subsequently, as overseas economies return to a moderate growth trajectory, Japan's economic growth may also recover.

Regarding the CPI (excluding fresh food), the impact of recent food price increases (such as rice prices) is expected to gradually fade, but due to the drag from economic slowdown, core CPI inflation may remain sluggish.

However, as economic growth picks up, labor shortages are expected to intensify, and medium- to long-term inflation expectations will also rise, leading to a gradual increase in core CPI inflation. In the latter half of the forecast period for the July 2025 "Outlook for Economic Activity and Prices," the level of core CPI inflation is expected to roughly meet the price stability target.

The outlook faces multiple risks, especially the direction of trade and other policies in various economies, as well as the highly uncertain responses of overseas economic activity and prices. Therefore, it is necessary to closely monitor the impact of these developments on financial and foreign exchange markets, as well as on Japan's economic activity and prices.