The Bank of Japan (BoJ) held its benchmark short-term interest rate steady at 0.5% in its September 18-19, 2025 monetary policy meeting. This level marks the highest borrowing cost since 2008, reflecting the BoJ’s cautious stance amid mixed economic signals and global uncertainties. The decision was passed with a 7-2 vote among the board members.
In a notable policy shift, the BoJ announced it will start selling its exchange-traded funds (ETFs) and real estate investment trusts (REITs), a move signaling a step toward normalization after years of ultra-loose monetary easing.
Interest Rate Decision Summary
| Aspect | Details |
|---|---|
| Interest Rate Target | 0.5% (unchanged) |
| Last Rate Increase | January 2025 (to 0.5%) |
| Vote Outcome | 7 in favor, 2 against |
| Highest Since | 2008 |
| Reason for Hold | Economic uncertainties, inflation trends, political risks |
| Future Outlook | Data-dependent, cautious approach |
ETF and REIT Sales Plan
| Asset Class | Annual Sale Amount (JPY) | Significance |
|---|---|---|
| Exchange-Traded Funds (ETFs) | 330 billion | Gradual unwinding of expanded BoJ balance sheet |
| Real Estate Investment Trusts (REITs) | 5 billion | Signals cautious normalization of asset holdings |
The BoJ’s decision to begin selling around JPY 330 billion worth of ETFs and JPY 5 billion of REITs annually marks an important development in reverting its balance sheet expansion, which was aimed at stimulating the economy during periods of very low inflation and sluggish growth.
Economic and Inflation Outlook
The BoJ’s board assessed that Japan’s economy has moderately recovered but faces headwinds. Private consumption has been supported by improving employment and income levels, even though consumer sentiment has softened recently. Export performance and industrial output remain subdued amid global trade uncertainties.
| Indicator | Current Status |
|---|---|
| Inflation Rate (Core CPI) | Between 2.5% and 3.0% |
| Main Inflation Drivers | Food prices (notably rice) |
| Economic Growth | Moderate recovery |
| Consumer Sentiment | Softening |
| Export & Industrial Output | Subdued |
| Inflation Expectation | Slight increase |
Inflation remains above the BoJ’s 2% target but is primarily driven by rising food prices rather than sustained demand pressures. Core consumer price inflation, excluding volatile food and energy, is projected to rise gradually.
Policy Outlook and Statements
BoJ Governor Kazuo Ueda emphasized a flexible, data-dependent approach to future policy decisions. The bank is open to raising rates further if economic activity and inflation progress as expected but remains cautious given external risks like U.S. tariffs and uncertain global trade conditions.
The decision to hold rates steady reflects a balanced wait-and-see stance ahead of potential political clarity and further economic data releases.
Global Context and Market Reaction
The BoJ’s move contrasts with recent actions by other central banks. For instance, the U.S. Federal Reserve recently cut interest rates, marking its first reduction since December. This divergence highlights differing economic challenges and recovery trajectories across economies.
Investors responded cautiously to the BoJ announcement, recognizing that starting ETF and REIT sales signals a new phase of monetary policy where the central bank seeks to normalize its unprecedented balance sheet expansions.
Conclusion
The Bank of Japan’s September 2025 policy meeting was a pivotal milestone. By keeping interest rates at 0.5% and announcing the start of ETF and REIT sales, the BoJ underscores its gradual policy normalization approach in a still-fragile economic landscape. The bank remains vigilant on inflation and economic growth prospects, maintaining flexibility while managing risks from geopolitical and global market uncertainties.