Two per cent, declared at last, and one hand up for 1.5%

The Bank of Japan kept its short-term policy rate at 1.25% on Friday, by an 8–1 vote². Board member Hajime Takata dissented and proposed a rise to 1.5%². That is the headline. The sentence that matters is in the quarterly Outlook Report: underlying inflation is now “generally consistent” with the 2% target and expected to stay there¹.

Why the sentence matters. investingLive reads it as the bank all but declaring victory over deflation, with its own forecasts now saying inflation is the bigger risk¹. Risks to prices are skewed to the upside, the bank says, while risks to activity are broadly balanced¹. It points to a persistent sense of labour shortage, wages and prices feeding each other, and medium- to long-term inflation expectations of about 2%¹. Those are not slogans. They are payroll and invoice facts.

What the forecasts say. The board’s median forecast for core inflation in fiscal 2027 rose to 2.6% from 2.4%, mostly because of higher crude prices since the summer; fiscal 2026 stays at 2.5% and fiscal 2028 at 2.0%¹. Growth is seen at 0.7% in fiscal 2026 and 2027 and 0.8% in 2028¹. One assumption deserves a pencil mark: the projections assume Dubai crude falls from around $105 a barrel to around $70 by the end of the forecast period¹. investingLive notes that a sustained rise in oil tied to the Iran conflict would add to the upside risk to inflation¹.

The receipt on the same morning. Tokyo’s core consumer prices rose 2.6% in October from a year earlier, slightly slower than September’s 2.7% and in line with forecasts³. Underlying prices excluding fresh food and energy also rose 2.6%³. Desk arithmetic: the capital’s numbers and the bank’s declaration line up almost exactly.

The calm point. No member voted for a cut, which removes a risk flagged before the meeting¹. A bank that moves slowly, explains its reasoning in a published report and lets one dissenter argue in public is the dull machinery working as designed. For you in the euro area, a firmer yen and higher Japanese yields matter mainly through global bond prices, and they arrive gradually. Nothing here is investment advice.