Bank of Japan holds rates steady at 0.5% as expected, boosts growth forecast

[Business concept acronym]
Evgeny Gromov

The Bank of Japan (BoJ) kept its benchmark short-term interest rate unchanged at 0.5% in October 2025, extending a pause in its policy tightening cycle. The decision, which was largely in line with market expectations, maintains borrowing costs at their highest level since 2008.

While holding steady, the central bank reaffirmed its commitment to continue raising borrowing costs if the economy progresses in line with its projections for achieving its 2% inflation target.

The BoJ’s nine-member policy board approved the decision by a 7-2 vote. Hawkish board members Naoki Tamura and Hajime Takata dissented for a second consecutive month, proposing a rise to 0.75%, underscoring the ongoing internal debate over the timing of the next rate hike.

In its quarterly outlook, the BoJ held core inflation for FY 2025 at 2.7%, expecting it to ease to 1.8% in FY 2026 before rising slightly to 2.0% in FY 2027. GDP growth for FY 2025 was revised up to 0.7% from 0.6%, supported by a trade deal with Washington and new leadership under Prime Minister Sanae Takaichi, while GDP projections for FY 2026 and 2027 remained at 0.7% and 1%, respectively.

The Nikkei 225 Index [https://seekingalpha.com/symbol/NKY:IND#hasComeFromMpArticle=false#source=section%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews] rose 0.5% to above 51,500 while the broader Topix Index gained 0.6% to 3,298 on Thursday, with Japanese shares hitting fresh record highs. The Japanese yen [https://seekingalpha.com/symbol/USD:JPY#hasComeFromMpArticle=false#source=section%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews] depreciated to around 153 per dollar on Thursday, nearing nine-month lows, after the Bank of Japan kept its policy rate unchanged at 0.5%, in line with expectations.

MORE ON JAPAN

* BoJ minutes reveal ongoing caution on economy amid inflation & market risks [https://seekingalpha.com/news/4461933-boj-minutes-reveal-ongoing-caution-on-economy-amid-inflation-market-risks#source=url_first_level%3Amarket-news%7Csection%3Amarket-pulse%7Csection_asset%3Anews_title]
* Japan's manufacturing PMI revised upward to 48.7 in April [https://seekingalpha.com/news/4438674-japans-manufacturing-pmi-revised-upward-to-487-in-april]
* Japan to spend ¥388 billion on relief measures for U.S. tariff impact [https://seekingalpha.com/news/4452761-japan-to-spend-388-billion-on-relief-measures-for-us-tariff-impact]
* Japan services sector expands for sixth month, but jobless rate hits 13-month high [https://seekingalpha.com/news/4501564-japan-services-sector-expands-for-sixth-month-but-jobless-rate-hits-13-month-high]
*
Takaichi elected LDP Chief, poised to become Japan’s first female prime minister [https://seekingalpha.com/news/4501869-takaichi-elected-ldp-chief-poised-to-become-japans-first-female-prime-minister]