Bank of Japan raises economic growth forecasts ahead of snap election, holds rates at 0.75%

Economic Growth Forecasts - The Bank of Japan (BOJ) raised its economic growth forecast for the fiscal year ending in March 2026 to 0.9% from 0.7% and for the 2026 fiscal year to 1% from 0.7% [1][2] - The central bank expects Japan's GDP to grow moderately as other countries return to growth, supported by a virtuous cycle of rising prices and wages [2] Monetary Policy - The BOJ held its key policy rate steady at 0.75% in a split 8-1 decision, after previously raising it to the highest level in 30 years in December [2][5] - There is political pressure for softer rates to stimulate economic growth, particularly from figures like Prime Minister Sanae Takaichi [5] Inflation Trends - December inflation data showed headline price growth at 2.1%, the lowest since March 2022, but still above the BOJ's 2% target for the 45th consecutive month [4] - Core-core inflation, excluding fresh food and energy prices, was reported at 2.9% in December [4] - The BOJ forecasts inflation to fall below the 2% target in the first half of the year, but underlying inflation is expected to continue rising moderately due to wage growth and persistent service prices [3][4] Future Policy Direction - BOJ Governor Kazuo Ueda indicated that the bank will continue to raise interest rates if economic and price forecasts are realized [6] - The BOJ's normalization path is expected to remain intact, albeit at a gradual pace [3][4]