BOJ leaves benchmark unchanged: Updated Feb. 4, 2026.

BOJ leaves benchmark interest rate unchanged at policy meeting

Article source: https://mainichi.jp/english/articles/20260123/p2g/00m/0bu/020000c

Ideas

For a long time, the BOJ suggested that the Japanese economy is/was just too weak for any rate increases as it would significantly affect businesses, consumers, households, and even banks in Japan.

While never really mentioned that much the weak Japanese yen has always been seen as a boom for the large Japanese export companies, as the weak yen, improves their profits as at the time significantly improves Japan's current account which the Japanese government uses for many of its programs.

The two percent target rate as been an elusive target for much of the last decade if not longer and it seems while the BOJ might be inching closer to it, its still a target that is not out of reach but at the same time, not achievable just yet.

Most central banks would prefer the inflation rate would be around 2 percent as they feel its at a manageable level and the economy is not overheating and or not stagnating as the flow of money through the economy is a a reasonable pace.

To be fair, over the past decade, or longer, many former Prime Ministers have tried to use stimulus packages to get the economy moving in the right direction but mostly without much success except for maybe in the short-term only.

As the new Prime Minister is a fiscal and monetary dove, it might mean there is going to be more government spending to try and get the economy moving in the right direction and the BOJ's decision not to increase the key rate might have been a result of being influenced by the new Prime Minister not to increase the key rate which potentially could stifle business spending, consumer and household spending.

The Japanese economy is now considered a mature economy which don't grow that much as even at 0.9 percent or even 1.0 percent that would be a significant achievement as the Japanese economy, for many years was in a quasi-stagnant phase with little to no economic growth.

Japanese businesses and investors need to understand that the Japanese economy is not going to grow like China ever again like the US economy ever again as mature economies just don't have the needed resources to grow like emerging economies do and or it takes a significant increase in resources to grow a mature economy like it did when it was a emerging economy.

It sounds like the current language used by the BOJ related to inflation and the global economy,while not really negative, is aimed as not being too pessimistic as it doesn't want to upset the financial markets in Japan or globally too.

And yes, as Japan is a resource-poor country, global prices and the weak Japanese yen is still going to be factor of importers and the domestic economy in Japan in the future despite the BOJ suggesting inflation might get down to 1.9 percent in 2026.

It appears, as usual, the BOJ is still being very cautious and still sees the economy as being too weak to increase the key rate to much as it might affect, again, businesses, consumers, households, and even banks with a too high key rate increase.

There are always to kinds of inflation moving through an economy as its quite possible that might be happening in Japan at the same time. One kind of inflation, which is very common in Japan is inflation related to the increase or prices due to the increase in costs related to energy and raw materials that companies need to conduct business.

The other kind of inflation, which may or may not be that evident the kind of inflation due to increased consumer demand as business will generally increase prices if they see or feel consumers are buying more of their products.

But to be fair, it seems the first kind of inflation, in Japan, recently is what has been happening for a very long time as maybe consumer spending has been less than optimal for the economy.

Again, the BOJ's 2 percent target has been elusive a very long time and there is trying to estimate what is going to happen in 2027 might be too much as a lot can happen in year in an economy as the BOJ's track record related to estimations hasn't been that significant recently.

But then again estimations are not an exact science or an exact statistical measure as there are just too many variables that can change change within a years time.

And yes, for sure, while the new Prime Minister is a fiscal and monetary dove, there might be more stimulus packages that are going to be presented as a way to improve the economy, businesses, and even Japanese households in the future.

The last two sales tax increases in Japan in 2014 from 5 to 8 percent and then in 2019 from 8 to 10 percent were not very popular by Japanese households or consumers as they significantly reduced their spending but of course over time got used the increase in the sales tax.

The increase in the sales tax in 2014 and 2019 were attempts to use the sales tax as a way reduce the already bloated government debt which was among the highest, if not the highest at 250 percent of GDP, among advanced nations, as the sales tax increases have had a minimal effect on the reduction of the government debt in Japan.

And to be sure the weak Japanese yen, while both a positive and negative for the Japanese economy has been maybe more of negative recently as maybe it has affect the domestic economy a more that helping the economy.

Because Japan is resource-poor economy it has to import much of what it needs and the weak Japanese yen, increases the price of import products into Japan, which means importer and wholesalers will and or passing-on the higher prices for import price through the supply chain which of course means even retail customers are seeing significant increase in prices in Japan.

While at the same time, the large name-brand Japanese export companies see significant increases in the price of their products in overseas markets but how much does it really help the domestic economy and the average Japanese household in Japan.

Have a nice day!