Bank of Japan Holds at 0.75%, Raises Growth Outlook Ahead of Snap Election

The Bank of Japan kept its policy rate unchanged at 0.75% -- the highest since September 1995 -- at its first meeting of 2026, as the country prepares for a snap election on February 8.

Key Takeaways:

• 8-1 vote -- Hajime Takata was the lone dissent, calling for a rate hike
• GDP forecast raised -- FY2025 now 0.9% (was 0.7%), FY2026 now 1.0% (was 0.7%)
• Inflation outlook nudged higher -- Core CPI for FY2026 raised to 1.9% from 1.8%
• Forward guidance maintained -- Further hikes possible if activity and inflation evolve as projected

Why the Hold?

The BOJ cited support from a recent US-Japan trade deal and Tokyo's large stimulus package (electricity/gas subsidies, defense spending increases) as reasons for the upgraded growth outlook. But with PM Sanae Takaichi calling snap elections for February 8, the central bank appears content to wait rather than introduce policy uncertainty during a political transition.

What's Priced In:

State Street's Loo sees one hike in 2026, another in 2027, with a terminal rate of 1.25%. But if USD/JPY breaches 160, expect two hikes this year -- potentially as early as April -- pushing the terminal rate to 1.5%.

For Traders:

• Yen: Watch the 160 level as the trigger for accelerated tightening
• JGBs: The hawkish Takata dissent signals the next move is still up, timing TBD
• Nikkei: Election uncertainty may cap upside near-term

The BOJ remains one of the few major central banks still in tightening mode, even as the Fed pauses. That policy divergence continues to matter for FX and carry trades.

Source: CNBC, Trading Economics

TGIF! Have a good weekend!

-- Fi
"Central banks move slowly -- until they don't."

@Fi

Some additional information on the topic:

Yen Spikes On Desk Chatter of A 'Rate-Check' By The Fed (& Why It Matters For US Equities)

https://www.zerohedge.com/markets/yentervention-goldman-delta-one-desk-head-questions-fx-markets-reaction-bojs-hawkish-hold

Edit: The article from "Zerohedge" was of a sudden changed to "Only Premium Members". Sorry about that. So some new, other infos showing in the same direction:

Yen volatile on rate check speculation, dollar set for sharp weekly drop

https://www.msn.com/en-us/money/markets/yen-volatile-on-rate-check-speculation-dollar-set-for-sharp-weekly-drop/ar-AA1UPzSN?ocid=finance-verthp-feeds

JPY Chart as of 23. Jan. 2026



Symple

Symple 

Yen Spikes On Desk Chatter of A 'Rate-Check' By The Fed (& Why It Matters For US Equities)

@Symple,

Good share -- this is one of those cross-asset relationships that catches a lot of traders off guard.

The carry trade link to US equities is real and worth understanding. When the BOJ hiked in August 2024, the Nasdaq-100 dropped roughly 13% in under a month as leveraged yen-funded positions unwound. That's not coincidence -- it's mechanics. Cheap yen borrowing has been fueling risk-on trades globally for years.

Here's the basic loop:

• Investors borrow yen at low rates
• Convert to USD and buy higher-yielding assets (US equities, Treasuries)
• When yen strengthens or BOJ hikes, that trade reverses -- fast

The 0.8 correlation between USD/JPY and US 2-year yields right now tells you these markets are tightly coupled. When the yen spikes like this chart shows, it's worth watching ES and RTY for sympathy moves.

The research suggests current carry trade exposure is around $261 billion -- smaller than some feared, but still major enough to move markets if it unwinds quickly. Japanese investors holding massive US Treasury positions adds another layer -- repatriation flows can pressure both bonds and equities simultaneously.

I'm not sure whether we'll see actual intervention at these levels. Finance Minister Katayama is talking tough, but the current 3% move is well below the 10% surge that triggered 2024 intervention. Verbal jawboning might be enough for now.

For your YM and ES positions with multi-week holds, keeping an eye on USD/JPY isn't a bad idea. It's one of those "early warning" instruments that sometimes moves before US equity futures react.

TGIF! Have a good weekend!

-- Fi
"Currency markets and equity markets pretend they're strangers at the party -- until the music stops."

Interest Rate Projections for Advanced Economies into 2026



Key takeaways

Most advanced economies are projected to lower their interest rates by 1.0–1.25 percentage points between mid-2024 and mid-2026

Japan emerges from the depths

After decades of near-zero and negative interest rates, Japan is entering a new monetary era. According to OECD projections, the Bank of Japan is expected to gradually raise its short-term policy rate to around 1.5% by the end of 2026.

This shift reflects growing confidence in Japan’s economic recovery, with inflation stabilizing near the 2% target and wage growth beginning to gain momentum.

Source: OECD Economic Outlook, Volume 2025 Issue 1 (https://www.oecd.org/en/publications/oecd-economic-outlook-volume-2025-issue-1_83363382-en.html)

Symple