Bank of Japan Holds at 1.25% as Inflation Finally Hits Target — and the Yen Gains

The Bank of Japan kept its benchmark rate at 1.25% on Friday, October 30, after a two-day policy meeting, in a widely expected decision that still moved markets. The vote was 8–1, with board member Hajime Takata dissenting in favour of an immediate rise to 1.50%. The yen, which had weakened to around 157.815 per dollar before the announcement, strengthened to 157.115 afterwards, erasing most of its losses for the month and putting it on track to end October broadly flat.

The real news was not the hold but the language around it. For the first time since adopting its 2% price-stability target in 2013, the Bank said underlying inflation is at a level generally consistent with that target — a milestone more than 13 years in the making. Its quarterly Outlook Report raised the fiscal 2027 core inflation forecast to 2.6% from 2.4% and core-core inflation to 2.7% from 2.6%, while trimming growth to 0.7% from 0.8%. Separately, the Bank unanimously agreed to speed up ETF-holding sales from about ¥330 billion to ¥860 billion a year from January 2027. As State Street strategist Masahiko Loo put it, this was a “boring hold, hawkish direction”: the debate is no longer whether Japan normalises policy, but how far rates ultimately go.

The decision closed a remarkable week of waiting by the world’s central banks. The US Federal Reserve held rates on Wednesday, the European Central Bank held on Thursday with its deposit rate at 2.50% while warning that surging energy costs pose upside inflation risks, and the Reserve Bank of New Zealand also stood pat. The euro, which had briefly dipped to its lowest since May 2025 in the previous session, recovered to $1.1197, up 0.15% on the day, though it remains on track for a 1.2% monthly drop. Sterling rose to $1.34 and the Australian dollar to $0.7042. The ECB’s week carried its own drama: Christine Lagarde steps down as president on February 7, 2027, with a December rate rise now firmly in play.

Beneath the central-bank calm, a different force was moving currencies: doubts about artificial intelligence. Alphabet’s results earlier in the week rekindled worries about whether massive AI spending will pay off, and Amazon and Intel results added to the concern, pushing technology shares lower and investors into government bonds. Japan’s Nikkei fell as much as 3% on Friday, with Advantest down 9.1%, Tokyo Electron 5.6% and SoftBank 6.7%. The flight to Treasuries pushed the US 10-year yield to 4.8958% and the 30-year to 5.2623%, both their lowest in over a month, and the dollar index eased to 101.77. Unusually, this risk-off episode softened rather than supported the dollar — a reminder that when the worry is centred on US tech itself, the usual safe-haven playbook can flip.

What to watch next: Governor Kazuo Ueda’s news conference, with markets focused on whether December brings the next hike — before the decision, traders priced roughly an 80% chance of a December move. The Bank of England and the Reserve Bank of Australia take centre stage next week, and Brent crude, on track for an 11.5% monthly gain in its fourth straight monthly advance, keeps energy-driven inflation risk alive. For traders, a week like this shows why the calendar matters as much as the chart: rates, inflation forecasts and earnings can all move a pair in a single session. Our forex section explains how central-bank decisions feed into exchange rates, and the forex tools page has calculators for sizing positions when volatility spikes. (Not financial advice.)