BOJ Stands Pat but Primes Market for More Hikes with Hawkish Inflation Signals

Reuters

16:40 JST, January 23, 2026

TOKYO (Reuters) — The Bank of Japan retained its hawkish inflation forecasts on Friday after keeping policy steady, signaling its conviction that a moderate economic recovery justifies raising still-low borrowing costs further in a politically charged atmosphere.

In a sign of its caution over the inflationary effects of a weak yen, the central bank said the currency’s moves could prod firms to pass on rising import costs and push up underlying consumer prices — a key gauge determining its rate-hike timing.

Board member Hajime Takata also proposed raising rates for the second straight meeting, which found no other voices in support but highlighted the hawkish momentum within the central bank.

We will continue to raise interest rates if our economic and price forecasts materialize. As for our rate-hike path and pace, that will depend on economic, price and financial developments at the time, BOJ Governor Kazuo Ueda told a press conference.

We will carefully look at available data at each policy meeting, and update our view on economic and price developments, risks and the likelihood of achieving our forecasts, he said.

At a two-day meeting that ended on Friday, the BOJ maintained its key policy rate at 0.75% in a widely expected decision after having just hiked the rate from 0.5% in December.

Markets had been keenly watching out for Ueda’s post-meeting press conference for hints on when the BOJ might next raise rates, a decision complicated by a fresh bout of market volatility caused by Prime Minister Sanae Takaichi’s move to call a snap election next month.

Takaichi’s dovish monetary and fiscal credentials pose a particular challenge for the BOJ given Ueda’s inclination to normalize policy after decades of stimulatory rates.

In a quarterly outlook report, the BOJ painted a more optimistic view of the economy to say a positive cycle of income and expenditure will “gradually strengthen.”

The BOJ raised its growth forecast for fiscal 2025 and 2026, and maintained its view the economy will remain on course for a moderate recovery.