The Bank of Japan (BoJ) maintained its short-term policy rate at 1.25% but signaled a hawkish stance, warning of potential inflation overshoot. The decision was unanimous except for board member Takata, who voted for a rate hike to 1.5%. Governor Kazuo Ueda emphasized the BoJ's readiness to adjust policy as needed, though he cautioned that inflation must remain stable around 2% before declaring victory.
The central bank noted that underlying inflation aligns with its 2% target, while financial conditions remain accommodative. It raised its fiscal 2027 core CPI forecast to 2.6% from 2.4%, though the projection for fiscal 2028 stayed at 2.0%. GDP growth forecasts were revised to 0.7% for both fiscal 2026 and 2027.
Ueda highlighted shifting risks, including Middle East conflict, AI-driven demand, and FX volatility. He stressed the BoJ would act proactively if inflation rises further, though future rate hikes will depend on data, wage trends, and financial conditions. The bank did not commit to a fixed timetable for increases.
Overall, the BoJ's stance was hawkish, with further rate hikes likely as it seeks sustainable inflation around 2%. The pause in rate adjustments reflects a need for more evidence on stable inflation and wage growth.