Macro · Macro Rapid Response The BoJ Hikes to 1.25% and Cools Expectations of a Steady Run of Rate Hikes

Key arguments

• The 7-2 vote shows two Takaichi-appointed members dissenting and Takata and Tamura contesting the underlying inflation assessment, revealing a board not uniformly hawkish.
• The statement and guidance repeat June-July language with no new hawkish signals; the only addition is stabilising underlying inflation near 2%, a rewording rather than a tightening signal.
• Headline CPI and the index excluding energy and fresh food held at 1.9% y/y in August, with core-core slipping to 1.7%, kept down by government measures subtracting around six tenths.
• A gradual unwinding of those measures should lift inflation to 2.7% in Q4 and a 3.5% peak in early 2027, supporting further but gradual tightening toward 2.00% by end-2027.

Corresponding source evidence

1. The BoJ Hikes to 1.25% and Cools Expectations of a Steady Run of Rate Hikes The Bank of Japan (BoJ) raised its policy rate by 25bp to 1.25% by a 7-2 vote, with the two members appointed by Prime Minister Takaichi dissenting.
2. Ueda described a new phase of monetary policy, moving from supporting underlying inflation to stabilising it at 2%, but avoided committing to a sequence of hikes, and markets read the message as less hawkish than expected.
3. We expect the next 25bp hike in January, with a move brought forward to December only in the event of a marked acceleration in the inflation measures excluding institutional factors.