Bank of Japan Held Rates Steady as Expected, Inflation Stayed Above 2% Target Rate

Akira Ito
23 Jan, 2026
Tokyo

Japan's market averages edged higher on Friday and extended the previous session's gains as investors reviewed the monetary policy decisions and inflation update. 

The Nikkei 225 Stock Average edged up 0.2%, the broader Topix Index increased 0.4%, and the yield on 10-year Japanese bonds held at 0.75%. 

The Bank of Japan held steady its interest rates at 0.75% after the first policy meeting of 2026. 

The policy committee voted to hold rates in an 8-to-1 vote, as committee participants balanced inflation risks, a weakening yen, and growing fiscal concerns tied to Prime Minister Sanae Takaichi's fiscal expansionary plans.  

However, the central bank held out for higher rates if economic activities and inflation evolved as expected by policymakers. 

The Bank of Japan raised rates two times in 2025, and the committee raised its core inflation outlook to 1.9% from 1.8% and GDP growth to 1.0% from 0.7% for the fiscal year 2026. 

Japan's annual inflation eased in December to 2.1% from 2.9% in the previous month, according to the Ministry of Internal Affairs and Communications. 

The overall inflation rate eased after food inflation dropped to 5.1% from 6.1%, and core inflation slipped to 2.4% from 3% and stayed still above the central bank's target rate of 2% for the 45th consecutive month. 

Core-core inflation, which excludes food and energy prices, increased to 2.9%, which reflects underlying price pressure across a broad set of economic activities. 

For 2025, core inflation, which excludes volatile fresh food prices, rose 3.1% from a year ago, marking the increase for the fourth year in a row.  

 

Japan Indexes and Stocks 

The Nikkei 225 Stock Average edged up 0.2% to 53,799.51, and the broader Topix Index increased 0.4% to 3,630.74. 

Vehicle makers, banks, and defense contractors advanced following the Bank of Japan's rate decisions and a rebound in U.S. stocks in overnight trading. 

Softbank Group decreased 1.1% to ¥4,274.0, Tokyo Electron declined 1.8% to ¥41,720.0, and Advantest Corp. jumped 3% to ¥23,530.0. 

Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group gained 1%, and Mizuho Financial decreased 1%.