The Bank of Japan's full Outlook Report, scheduled for release at 14:00 on Monday, November 2, says the central bank will keep raising its policy rate and adjusting the degree of monetary accommodation. It will do so in response to developments in activity, prices and financial conditions, and it will weigh the timing and pace of each step. The report adds the forecast tables and the Bank's reading of corporate funding conditions to the decisions taken on October 29 and 30.
A rate path with no date attached
The Policy Board set the guideline for money market operations at an uncollateralized overnight call rate of around 1.25%, by an 8-1 vote. Takata Hajime dissented. He argued that underlying inflation had reached the price stability target, that policy had entered a new phase, and that the Bank should step up the pace of moving toward the neutral rate, proposing a guide of around 1.5%. The full report says the call rate had been around 1.0% until the policy rate was raised at the September meeting.
The Bank's reasoning is that underlying CPI inflation is generally consistent with its 2% target and financial conditions are accommodative. It says there has recently been a shift in the phase of monetary policy, after a period when downside price risks needed considerable attention. The Outlook gives no date or level for the next increase.
Inflation above 2% before it eases
The Bank expects CPI (all items less fresh food) to accelerate to a level clearly above 2%, driven by crude oil, semiconductor prices tied to AI demand and the weaker yen, then decline toward around 2% in the second half of the projection period. Compared with the July report, real GDP growth forecasts are more or less unchanged, while the fiscal 2027 CPI forecast is somewhat higher, with the median up 0.2 points to 2.6%.
| Measure | Fiscal 2026 | Fiscal 2027 | Fiscal 2028 |
|---|---|---|---|
| Real GDP | 0.7 | 0.7 | 0.8 |
| CPI (all items less fresh food) | 2.5 | 2.6 | 2.0 |
| CPI (all items less fresh food and energy) | 2.4 | 2.7 | 2.3 |
The forecasts assume Dubai crude falls from around $105 a barrel to around $70 by the end of the projection period, based on futures markets. They exclude the proposed temporary consumption tax cut on food and beverages now before the Diet. If it applied to every item in the Cabinet's September tax outline, the Bank estimates it would lower fiscal 2027 CPI inflation by about 1.3 percentage points, or 1.4 points excluding fresh food and energy.
The Bank judges risks to activity as generally balanced and risks to prices as skewed to the upside. It names the Middle East, AI-related demand and exchange rates as the main sources of uncertainty.
What higher rates mean for borrowers
The report tells corporate borrowers that costs are rising from a low base. Lending rates, both short and long term, have risen with market rates, and issuance rates for commercial paper and corporate bonds have increased. Real interest rates are rising but remain low, and the Bank says firms' funding costs are still sufficiently low relative to profitability.
Demand for funds is strong, partly because of mergers and acquisitions. Bank lending is growing 5.5% to 6.0% year on year, and the combined stock of commercial paper and corporate bonds is up 5.0% to 6.5%. The Bank also says the number of firms pointing to a rising interest burden has increased somewhat, in industries with many small firms and a high ratio of interest-bearing debt. The September Tankan forecast for non-manufacturers cited concern over higher interest rates.
ETF sales: larger, but with an escape valve
From January 2027 the Bank will sell ETFs at about ¥860bn a year on a book-value basis, up from about ¥330bn, the pace it set in September 2025 and began in January 2026. The pace moves from about 0.05% to about 0.1% of stock market trading value. The Bank puts the annual amount at about ¥2.46tn at market value and the time to clear its holdings at about 43 years, down from about 112. That horizon is calculated from holdings at the end of September 2026 divided by the annual sales amount.
The Policy Board's vote on this was unanimous. The Bank may adjust the amount temporarily or suspend sales within the annual pace if financial market conditions change, and J-REIT sales stay at about ¥5bn a year. The amended Basic Principles for Disposal of ETFs and J-REITs take effect on January 1, 2027.
The Summary of Opinions is due on November 10 and the minutes of the meeting on December 23.