The Bank of Japan raised its policy rate by 25 bps to around 0.75% following the December 2025 meeting, adjusting monetary accommodation as wage and price dynamics strengthened. This is the first hike since January of this year, bringing interest rates to the highest in 30 years.

• The Policy Board unanimously set the uncollateralized overnight call rate at around 0.75%, marking a step up from the prior guideline and signaling continued normalization of policy settings.
• The interest rate on the complementary deposit facility was raised to 0.75%, while the basic loan rate was set at 1.0%, aligning the Bank’s administered rates with the new policy stance.
• The BoJ assessed that Japan’s economy has recovered moderately, with tight labor market conditions and high corporate profits supporting continued wage increases despite some tariff-related weakness in manufacturing.
• Underlying CPI inflation has continued to rise moderately, with firms increasingly passing higher wages through to selling prices, reinforcing the view that wage–price dynamics are becoming more entrenched.
• Headline CPI inflation (excluding fresh food) has been around 3% recently, driven largely by food price increases, but is expected to decelerate below 2% in the first half of fiscal 2026 as these effects wane.
• The Bank judged that the likelihood of underlying inflation reaching a level broadly consistent with the 2% price stability target in the second half of the projection period has increased.
• Real interest rates are expected to remain significantly negative even after the rate hike, indicating that overall financial conditions will stay accommodative while the BoJ continues to adjust policy gradually if the outlook is realized.