BoJ holds interest rate, lifts Japan's economic growth outlook

The Bank of Japan on Friday kept its overnight call rate unchanged while upgrading its economic growth forecast for the current and next fiscal year.

A statement showed that members of the central bank's policy board voted 8-1 to keep the interest rate at 0.75%, in line with the consensus forecast cited by FXStreet.

The last revision was in December when the BoJ hiked the rate to the highest level since 1995 with a 25 basis points increase to 0.75% from 0.50% previously.

Takata Hajime was the single dissenting voice on the policy board, advocating a 25 basis points increase to 1.0%.

"Takata Hajime considered that the price stability target had been more or less achieved and that, with overseas economies being in a recovery phase, risks to prices in Japan were skewed to the upside," a BoJ statement said.

Also Friday, the central bank issued its new outlook report for economic activity and prices.

According to the forecasts of the majority of the policy board members, real year-on-year gross domestic product growth of 0.8% to 0.9% is anticipated in the twelve months ending on March 31, up from the October forecast of 0.6% to 0.8%.

In the year ending March 31, 2027, growth is forecast to be 0.8% to 1.0%, up from 0.6% to 0.8% in the previous forecast.

According to the report, the revisions reflect the effects of the Japanese government's economic measures.

The forecast for the year ending March 31, 2028 is now 0.8% to 1.0%, compared to 0.7% to 1.1% previously, reflecting the expected dissipation of the effects of government measures.

"Japan's economy is likely to continue growing moderately, with overseas economies returning to a growth path, and as a virtuous cycle from income to spending gradually intensifies," the outlook report said.

On Friday, the Statistics Bureau of Japan said the national consumer price index rose 2.1% year-on-year in December from 2.9% in November.

Core CPI, which excludes volatile fresh food, grew 2.4% in December from 3.0% the previous month, matching the consensus forecast cited by FXStreet.

The BoJ's outlook report revised its CPI forecast, excluding fresh food, for the year ending March 31 to 2.7% to 2.8% year-on-year from 2.7% to 2.9%.

Meanwhile the forecast for the year ending March 31, 2027, is now 1.9% to 2.0% from 1.6% to 2.0%, and for the year ending March 31, 2028, the forecast is 1.9% to 2.2% from 1.8% to 2.0% previously.

"Risks to the outlook include developments in overseas economic activity and prices under the impact of trade and other policies in each jurisdiction, wage- and price-setting behavior of firms, and developments in financial and foreign exchange markets, and it is necessary to pay due attention to the impact of these risks on Japan's economic activity and prices," the BoJ outlook report added.