The Bank of Japan maintained its short-term policy interest rate at 0.75% following its policy meeting on Tuesday. In an accompanying report, the central bank raised its core inflation forecast for the 2026 fiscal year, citing rising energy prices linked to a conflict in the Middle East.
The decision to hold the rate was reached in a 6-3 vote by the bank’s policy board. According to the BOJ’s summary of the meeting, the three dissenting members advocated for an increase of the policy rate to 1.0%. The summary noted their position was based on the view that geopolitical tensions had increased upside risks to inflation. The outcome was consistent with the estimates of analysts polled by Reuters.
In its quarterly outlook report, the Bank of Japan revised several key economic projections. The forecast for core inflation, which excludes fresh food prices, was increased to 2.8% for the fiscal year ending in March 2027, up from its previous projection of 1.9%. The bank’s stated inflation target is 2%.
Concurrently, the central bank lowered its forecast for real gross domestic product (GDP) growth for the same period. The projection was adjusted to 0.5% from a previous estimate of 1.0%.
The BOJ attributed the forecast changes to external factors. “The rise in crude oil prices is expected to push up prices, mainly of energy and goods, with moves to pass on wage increases to selling prices continuing,” the bank said in its report. The statement also noted that economic growth was likely to decelerate as higher crude oil prices could constrain corporate profits and real household incomes.
This policy decision comes amid new government data on Japan’s economy. Official figures show Japan’s economy grew at a revised 0.3% quarter-on-quarter in the final three months of 2025. Inflation data from March showed the headline consumer price index rose to 1.5%, up from 1.3% in February. A separate measure known as “core-core” inflation, which excludes both fresh food and energy prices, registered at 2.4%, a decrease from 2.5% the prior month.
To address rising energy costs, the Japanese government has implemented subsidies and suspended taxes on gasoline.
Following the Bank of Japan’s announcement, market reactions were observed. The yield on the benchmark 10-year Japanese government bond was reported at 2.468%. The Nikkei 225 stock index traded down 0.5%.
