The Bank of Japan's Policy Board set its guideline for money market operations at an uncollateralized overnight call rate of around 1.25 percent on October 30, by an 8-1 vote. The lone dissenter, Takata Hajime, proposed 1.5 percent. The same meeting raised the annual pace of ETF sales, and the bank's Outlook Report says it will continue to raise the policy interest rate.
The dissent
Takata argued that underlying CPI inflation had reached the price stability target and that the situation had shifted to a new phase. In that phase, he said, the bank needs to step up the pace of bringing the policy rate closer to the neutral rate so it can make nimble responses. His proposal was defeated.
Guidance: more rate rises, timing open
The Outlook Report says the bank "will continue to raise the policy interest rate and adjust the degree of monetary accommodation" in response to developments in economic activity, prices and financial conditions. It will weigh the timing and pace against the likelihood of its baseline scenario and the risks, including the situation in the Middle East, AI-related demand and foreign exchange rates. The report gives no date or size for the next move.
The bank's inflation reading sets the conditions. It sees the CPI (all items less fresh food) accelerating to a level clearly above 2 percent, then declining toward around 2 percent in the second half of the projection period. Underlying inflation, it says, is generally consistent with the 2 percent target. Risks to the CPI outlook are skewed to the upside, and the bank flags the chance that medium- to long-term inflation expectations rise and push underlying inflation above target.
What it means for financing
The bank judges that real interest rates have been rising but remain low, mainly at the short end. Firms' funding costs are sufficiently low relative to profitability on the whole, demand for funds has increased, lenders' attitudes remain proactive, and CP and corporate bond issuance conditions are favorable. It concludes that financial conditions remain accommodative.
The forecasts
The Policy Board's median forecasts are below, with changes from the July Outlook Report in brackets. The bank notes that real GDP projections are more or less unchanged, while the fiscal 2027 CPI (all items less fresh food) projection is somewhat higher, reflecting the rise in crude oil prices since the summer.
| Fiscal year | Real GDP | CPI (less fresh food) | CPI (less fresh food and energy) |
|---|---|---|---|
| Current fiscal year (2026) | 0.7 (+0.1) | 2.5 (-) | 2.4 (-0.1) |
| Next fiscal year (2027) | 0.7 (-0.1) | 2.6 (+0.2) | 2.7 (+0.1) |
| Fiscal 2028 | 0.8 (-) | 2.0 (-) | 2.3 (+0.1) |
The forecasts exclude the proposed temporary consumption tax cut on food and beverages, now before the Diet. If the cut applied to all items in the Cabinet's September 2026 tax outline, the bank estimates it would lower next fiscal year's CPI (all items less fresh food) by around 1.3 percentage points and the CPI excluding fresh food and energy by around 1.4 points. The projections also assume Dubai crude falling from around $105 a barrel to around $70 by the end of the projection period, based on futures markets.
ETF sales: from about ¥330bn to about ¥860bn a year
The board voted unanimously to change the pace of its ETF disposal. From January 2027, the bank will sell at about ¥860bn a year on a book-value basis, up from about ¥330bn, or about 0.1 percent of market trading value, up from about 0.05 percent. At the market-to-book ratio of ETFs sold since January 2026, that is about ¥2.46tn at market value. The bank cites its smooth sales since January 2026 and the expansion in stock market trading value.
The bank's own calculation, dividing its ETF holdings at the end of September 2026 by the annual book-value sales amount, puts the time to complete sales at about 43 years, against about 112 years before. The pace uses Tokyo Stock Exchange Prime Market trading value from January to September 2026.
The bank amended its Basic Principles for Disposal of ETFs and J-REITs to reflect the new pace, effective January 1, 2027. A temporary adjustment or suspension of sales may still be made within the annual pace if financial market conditions change, as before. J-REIT sales stay at about ¥5bn a year.
Next documents
The BoJ will release the full text of the Outlook Report on November 2, the Summary of Opinions on November 10 and the minutes on December 23.