BOJ Holds Steady Amid Ongoing 3% Inflation, Investors Expect Possible Rate Increases

On September 19, 2025, the Bank of Japan (BOJ) opted to keep its primary policy rate steady at 0.5% for the fifth meeting in a row, despite inflation consistently exceeding 3% and mounting wage pressure. The outcome, made public after two days of policy discussions, matched the forecasts of analysts and market participants, who had expected the BOJ to maintain its cautious stance amid ongoing uncertainties over U.S. tariffs and domestic political shifts. The yen appreciated against leading currencies, such as the U.S. dollar, after the news, as traders viewed the decision as an indication that accommodative policies would likely persist title1 [ 1 ].

This move signals the BOJ’s continued prudence in tightening financial conditions, even as stable inflation appears more entrenched. Governor Kazuo Ueda reiterated that any rate increases hinge on inflation reliably moving toward the 2% goal, while also noting potential risks from global trade strains and fluctuating food prices. The central bank has adjusted its forecast for core inflation in fiscal 2025 to 2.7%, up from the 2.2% projected in April, but at the same time downgraded its growth outlook, citing worries over U.S. tariffs and a weakening global economy. Experts point out that the BOJ is now more flexible than before, having previously insisted inflation must be “firmly at 2%” before taking action.

One significant update from the meeting was the BOJ’s plan to start offloading exchange-traded funds (ETFs) as a way to manage market liquidity title1 [ 1 ]. This represents a shift from the bank’s previous intervention methods and indicates a move toward more targeted tactics to support the yen. The combination of ETF sales and the steady rate is intended to counter speculative market moves, while avoiding abrupt changes that could unsettle financial markets title1 [ 1 ].

Investors have been paying close attention to the BOJ’s approach to policy normalization. Although the bank has not signaled imminent rate increases, surveys of economists are showing a growing expectation for a gradual tightening process. Most analysts polled in July anticipated a 25-basis-point increase before the end of the year, with the first adjustment likely in either October 2025 or January 2026. This sentiment is echoed in internal BOJ discussions, where at least one board member has advocated for resuming rate hikes sooner rather than later. Still, the central bank remains wary, stressing the importance of more information on wage trends and persistent inflation.

The yen’s rise following the decision reflects the market’s complex view of the BOJ’s strategy. While holding rates met expectations of a slow tightening timeline, the new ETF selling plan and updated inflation outlook are being interpreted as steps toward eventual policy normalization. This has created a mixed response—investors welcome the perceived stability, but remain watchful of how quickly future hikes might come title1 [ 1 ].

The next BOJ monetary policy meeting is scheduled for October 29–30, 2025. Leading up to that, markets will keep a close eye on domestic wage talks, shifts in global trade, and new inflation data to gauge where the central bank may head next. For now, the BOJ is maintaining its supportive policy stance, balancing persistent inflation with external threats, but with a clear intention to move gradually toward normalization.