Bank of Japan Holds Rates Steady

The Bank of Japan kept its benchmark interest rate unchanged on Friday, opting for caution as it assesses the economic impact of last month’s rate hike and awaits the outcome of a closely watched snap election scheduled for early February.

The central bank left its policy rate at 0.75%, in line with the expectations of all economists surveyed by Bloomberg. The decision keeps borrowing costs at their highest level in three decades, underscoring the BOJ’s gradual approach to policy normalization after years of ultra-loose monetary settings.

In its latest quarterly outlook report, the bank raised four of its six inflation forecasts and reiterated its readiness to tighten policy further should its projections materialize. The vote revealed a rare split within the board: member Hajime Takata called for consecutive rate hikes, while the remaining policymakers supported holding rates steady for now.

The decision comes at a delicate political moment. Earlier this week, Prime Minister Sanae Takaichi unsettled financial markets by pledging to suspend the consumption tax on food purchases as part of her election campaign—an initiative that could add to inflationary pressures.

Governor Kazuo Ueda has signaled that the central bank remains on a path toward further rate increases, following December’s hike that pushed borrowing costs to their highest level since 1995. However, officials appear keen to avoid moving too quickly amid heightened political uncertainty.

The BOJ must now balance several competing forces: the lagged effects of its recent tightening, persistent inflationary pressure from a weak yen, rising long-term bond yields, and the potential economic implications of election-driven fiscal promises.

Attention is turning to Governor Ueda’s press conference, where investors will scrutinize his comments for clues on the timing of the next policy move and the central bank’s inflation outlook. Any remarks on the recent rise in long-dated Japanese government bond yields are also likely to draw close market attention.