BoJ keeps rates unchanged at 1.25%, as expected, in 8-1 vote with Takata the dissenter, while it stated that underlying inflation has reached levels consistent with the price target

Says: BoJ board member Takata proposes raising short-term interest rate target to 1.5%, but proposal was rejected by the board. Underlying inflation likely to remain around levels consistent with the price target. There is a risk that underlying inflation could overshoot the price target. Must pay particular attention to risk of inflation deviating upward from materialising, exerting an adverse impact on the economy afterwards. Financial conditions remain accommodative. BoJ's Takata considered that the situation had shifted to a new phase in which the Bank needs to accelerate bringing policy rates closer to neutral to allow nimble responses. Risks to prices are skewed to the upside. Decided to sell ETF holdings at a scale of about 0.1% of market trading value. Sets pace of ETF sales at around JPY 860bln per year on a book value basis from January. ETF holdings sales would take about 43 years to complete, compared with approximately 112 years previously. Will continue raising interest rates in response to economic and price developments, as well as financial conditions. Will consider timing and pace of rate hikes based on the likelihood of economic activity and prices aligning with its baseline scenario, as well as risks. Medium- to long-term inflation expectations are around 2%. Important to anchor underlying inflation around the 2% target. Firms' behaviour is shifting increasingly towards raising wages and prices Will conduct monetary policy as appropriate to sustainably and stably achieve the inflation target Must prevent the risk of inflation deviating upward and subsequently adversely affecting the economy. Risks to economic activity are generally balanced. Attention remains warranted on the impact of further increases in crude oil procurement costs on economic activity and prices. Middle East conflict, expansion in AI demand, FX volatility and their impact on the economy and prices warrant attention. Unlike in the past, when attention was focused on downside price risks, Japan has entered a new phase requiring attention to inflation overshooting. OUTLOOK REPORT: Real GDP: Fiscal 2026 median forecast raised to 0.7% from 0.6%. Fiscal 2027 median forecast lowered to 0.7% from 0.8%. Fiscal 2028 median forecast maintained at 0.8%. Core CPI: Fiscal 2026 median forecast maintained at 2.5%. Fiscal 2027 median forecast raised to 2.6% from 2.4%. Fiscal 2028 median forecast at maintained at 2.0%.