Highlights

• BOJ stated that the uncollateralized overnight call rate will be guided at around 0.75%.
• The interest rate on the complementary deposit facility has been revised to 0.75%.
• The basic loan rate under the complementary lending facility has been set at 1.0%.

The Bank of Japan (BOJ) announced a change in its monetary policy stance following its Monetary Policy Meeting held on December 19, 2025. The central bank stated that it has revised the guideline for money market operations, setting the target for the uncollateralized overnight call rate at around 0.75 percent. The decision was approved unanimously by the Policy Board and will take effect from December 22, 2025.

In line with this change, the BOJ stated that it has also revised the interest rates applied to its policy measures. The interest rate applied to the complementary deposit facility—covering current account balances held by financial institutions at the BOJ, excluding required reserves—has been set at 0.75 percent. Additionally, the basic loan rate applicable under the complementary lending facility has been adjusted to 1.0 percent.

Economic Conditions Cited by the BOJ

BOJ stated that Japan’s economy has recovered moderately, although some areas continue to show weakness. The central bank noted that labor market conditions remain tight and corporate profits are expected to stay at elevated levels overall, even after accounting for the impact of tariff policies.

According to the BOJ, wage developments remain a key factor, with firms expected to continue raising wages steadily in the coming year. The central bank stated that uncertainties related to overseas economies and trade policies have declined, although they remain present.

Inflation Trends and Price Stability Outlook

On the price front, the BOJ stated that underlying consumer price index (CPI) inflation has continued to rise moderately. The year-on-year increase in CPI, excluding fresh food, has recently been around 3 percent, driven in part by higher food prices such as rice and continued pass-through of wage increases to selling prices.

The BOJ stated that it is increasingly likely that the mechanism of moderate wage and price increases will be maintained. As a result, the likelihood of achieving inflation at a level generally consistent with the 2 percent price stability target during the second half of the projection period outlined in the October 2025 Outlook Report has increased.

BOJ Outlook on Future Interest Rate Path

Regarding future policy, the BOJ stated that real interest rates are expected to remain significantly negative even after the policy adjustment. The central bank added that accommodative financial conditions will continue to support economic activity.

BOJ stated that if economic activity and price developments align with projections in the October Outlook Report, it will continue to raise the policy interest rate and adjust monetary accommodation accordingly, while responding to changes in economic, price, and financial conditions.

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