The Bank of Japan (BOJ) kept interest rates unchanged at 0.75% and raised its forecast for Japan's economic growth.

The Bank of Japan (BOJ) decided to maintain its policy interest rate at 0.75% at its meeting on January 23. This is the highest interest rate in 30 years, set after the last rate hike in December 2025.

Upgrading GDP growth forecast and economic outlook.

At the conclusion of its first monetary policy meeting of 2026, the Bank of Japan (BOJ) raised its forecast for gross domestic product (GDP) growth for the fiscal year ending March 2026 to 0.9%, up from 0.7% given in October 2025. Simultaneously, its GDP growth forecast for fiscal year 2026 was also revised upward from 0.7% to 1%.

The Bank of Japan (BOJ) noted that the Japanese economy is showing signs of a slow recovery despite facing tariff shocks from 2025. Policymakers observed the formation of a wage-price spiral, fueled by economic stimulus measures and fiscal easing from the government.

Market developments and pressure on the Yen

The BOJ's decision received eight votes in favor and one against. Hajime Takata, the only member to oppose it, had proposed raising interest rates to 1% due to concerns that inflation risks remain bullish. Immediately after the announcement, the yen appreciated slightly, trading around 158 yen per US dollar, after briefly falling to near 159-160 yen/USD.

In addition, Japanese government bond yields have reached their highest levels in decades. Analysts believe investors are aggressively selling off bonds due to persistently negative real interest rates and growing concerns about the country's massive public debt.

Pressure from the political environment and inflation.

Japan's consumer price index (CPI) rose 2.1% in December 2025, marking the 45th consecutive month that inflation has exceeded the Bank of Japan's 2% target. However, the central bank forecasts that the rate of price increase will begin to fall below the target in the first half of this year.

Politically, the snap election scheduled for February 8th is putting pressure on the BOJ's decisions. Prime Minister Sanae Takaichi, who supports a loose monetary and fiscal policy stance, has planned a record $783 billion supplemental budget for fiscal year 2026 to support households facing rising living costs.

Finance Minister Satsuki Katayama said the ministry is closely monitoring developments in the foreign exchange market with high vigilance. The repeated warnings about the depreciation of the yen indicate Tokyo is prepared to intervene directly if the exchange rate fluctuates excessively.