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Japan’s central bank kept its policy rate steady at 0.75% on Tuesday, while revising its inflation estimates upwards as the Iran war raises supply-side risks.
The decision to keep rates steady came in a split 6-3 vote, and was in line with Reuters-polled analysts’ estimates. The dissenting members proposed to raise the policy rate to 1%, arguing that tensions in the Middle East had skewed price risks to the upside.
The Bank of Japan also cut its growth forecast for the fiscal year 2026 to 0.5% from 1%, and sharply raised its core inflation outlook to 2.8% from 1.9%. The BOJ has set its headline inflation target at 2%.
The bank warned that Japan’s economic growth was likely to decelerate as the increase in crude oil prices due to the the Middle East crisis is expected to crimp corporate profits and real household incomes “through factors such as a deterioration in the terms of trade.”
