Bank of Japan holds at 1.25% with one vote for a rise, and speeds up its ETF sales

The Bank of Japan kept its policy rate at around 1.25% on Friday, with one of nine board members voting for a rise to 1.5%, and it decided to sell its exchange-traded fund (ETF) holdings at about 2.6 times the current pace, according to its statement on monetary policy.

What happened

The board voted 8-1 to keep the uncollateralized overnight call rate, the bank's policy rate, at around 1.25%, the central bank said after its October 29-30 meeting. Hajime Takata voted against and proposed 1.5%, saying that with underlying consumer price inflation having reached the 2% price stability target, the bank needs to step up the pace of bringing the policy rate closer to the neutral rate.

The bank also changed how fast it sells the ETFs it holds. It will sell about 860 billion yen a year on a book-value basis, up from about 330 billion yen, a vote that was unanimous. The bank said the sales had proceeded smoothly since they started in January 2026 and that trading value in the stock market has been expanding. The new pace, about 0.1% of market trading value, takes effect in January 2027.

Why it matters

The vote follows the bank's September 18 decision to raise the rate to 1.25% from 1.0%, which passed 7-2 with Toichiro Asada and Ayano Sato opposed. In July the bank had held at 1.0%. Friday's meeting therefore left the rate unchanged for the first time since that increase, and the dissent moved from the side of waiting to the side of acting: the two September dissenters voted with the majority this time, while Takata voted for a higher rate.

In its October outlook report the bank said underlying consumer price inflation "is at a level that is generally consistent with the price stability target of 2 percent, and is expected to remain at around that level". It described the outlook for prices as skewed to the upside and the risks to economic activity as generally balanced.

The report's baseline expects prices excluding fresh food to "accelerate to a level clearly above 2 percent" in the first half of the projection period, citing higher crude oil prices, higher prices of semiconductors and other items, and the depreciation of the yen, before declining toward around 2% in the second half as the effect of high crude oil prices wanes.

What to watch

The board next meets on December 17-18, according to the bank's meeting schedule. The same schedule lists the summary of opinions from this meeting for November 10 and the minutes for December 23.

If prices keep running above the baseline in the bank's report, the dissent for a higher rate could widen; if activity weakens under the energy costs the bank cites, the case for waiting would gain support. Neither outcome is a forecast.