BoJ Holds Rates As Expected, Japan's Inflation Rate Slows Amid High Food Prices

Akira Ito
19 Sep, 2025
Tokyo

Japan's market indexes closed down after hitting new intraday highs, and the central bank announced its rate decisions and economic outlook. 

The Nikkei 225 Stock Average closed down 0.4%, and the broader Topix index eased 0.1%.

Market enthusiasm ahead of the Bank of Japan's rate decisions unraveled following the widely anticipated announcement. 

 

BoJ Holds Rates and Announces Policy Normalization Steps

The central bank held its short-term interest rate at 0.5%, passed by a 7-2 vote, keeping the borrowing costs at their highest level since 2008. 

The widely anticipated rate decision came amid political risks and uncertainties tied to the erratic U.S. trade policy.

The Bank of Japan said it plans to begin selling its holdings of exchange-traded funds worth 330 billion yen and real estate investment trusts worth 5 billion yen, unwinding years-long unusual policy maneuvers. 

The policy committee acknowledged that Japan's economy has recovered despite patches of weakness. 

Improving wages and employment conditions supported private consumption, and industrial output and exports remained subdued amid U.S. tariff headwinds.

 

Japan's Inflation Eased in August Following Energy Subsidies

Japan's annual inflation rate dropped for the fourth consecutive month in August, driven by a decline in energy prices. 

Consumer price inflation eased to 2.7% from 3.1% in July, dropping to the lowest level since October 2024, according to a report released by the Ministry of Internal Affairs and Communications. 

Food price inflation slowed to 7.2% from 7.6% in the previous month, and the increase in rice prices slowed to 69.7% after rising at an annual rate of 90.7% in July and 100.2% in June. 

Core inflation, which excludes food prices, dropped to 2.7% from 3.1% in the previous month, and core-core inflation, which excludes food and energy prices, rebounded to 3.3%. 

Core consumer prices fell for the third consecutive month in August and fell below 3% for the first time in nine months after the government reintroduced energy and electricity subsidies.

Service price inflation, which generally signals changes in wages, was at 1.5%, matching the rate in the previous month.

 

Japan Indexes and Stocks 

The Nikkei 225 Stock Average decreased 0.4% to 45,121.46, and the broader Topix edged down 0.1% to 3,155.76. 

For the week, the Nikkei 225 Stock Average gained 0.9%, and the Topix closed down 0.3%. 

Tokyo Electron Ltd. increased 0.6% to ¥25,610.0, Advantest Corp. gained 3.3% to ¥15,020.0, and Lasertec Corp. soared 12.1% to ¥19,185.0. 

Nippon Yusen KK fell 1.1% to ¥5,445.0, Mitsui O.S.K. Lines decreased 0.4% to ¥4,776.0, and Kawasaki Kisen Kaisha Ltd. declined 1.5% to ¥2,282.0.