The Bank of Japan kept its benchmark rate at 0.75%, with eight of nine policymakers voting to hold. The decision followed a December hike and was widely expected. Board member Hajime Takata was the sole dissenter, favoring a 25 basis point increase.

The central bank raised its real GDP forecasts for fiscal 2025 to 0.8-0.9% and for 2026 to 0.8-1.0%. It also upgraded its core inflation outlook for 2026 to 1.9-2.0%, citing anticipated fiscal support from Prime Minister Sanae Takaichi's government. This marks a shift from its previous cautious stance.

The BOJ expects inflation to moderate in early 2026 before rising steadily, with a tight labor market supporting wage growth. However, questions over how Takaichi will fund increased spending and tax cuts have already triggered a bond market sell-off and pressured the Japanese yen.