Bank of Japan raises economic growth forecasts ahead of snap election, holds rates at 0.75%

January 23, 2026

TL;DR

Bank of Japan (BOJ) raised economic growth forecasts for fiscal years ending March 2026 and 2027.
The BOJ maintained its key policy rate at 0.75% in an 8-1 decision.
Underlying inflation is expected to continue rising moderately, supported by wage growth and sticky service prices.
Japan's December headline inflation was 2.1%, above the BOJ's 2% target for the 45th consecutive month.
Core-core inflation (excluding food and energy) was 2.9% in December.
Japan embarked on policy normalization in March 2024, ending negative interest rates.
Political pressure exists for softer rates to fuel economic growth, with Prime Minister Sanae Takaichi advocating for monetary easing.
Japan's economy contracted 0.6% quarter-on-quarter in the third quarter.
BOJ Governor Kazuo Ueda indicated readiness to raise interest rates if economic and price forecasts materialize.
Japanese bond yields have risen to multi-decade highs, causing capital outflows and weakening the yen.
Finance Minister Satsuki Katayama expressed 'deep concern' over the yen's depreciation, a sentiment shared by Treasury Secretary Scott Bessent.
BOJ is ready to take 'nimble action to cope with exceptional moves' in long-term interest rates.
Analysts suggest potential rate hikes in 2026 and 2027, with the possibility of earlier hikes if the yen breaches 160 against the dollar.
Prime Minister Takaichi dissolved Japan's Lower House for a snap election on February 8th.

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