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Bank of Japan Keeps Benchmark Interest Rate Unchanged at 0.75% in March, Geopolitical Risks Add to Inflation Variables

By AI Insights

2026-03-19

Trend analysis based on the updated indicator. View the Indicator→

According to the latest data, the Bank of Japan (BOJ) decided at its monetary policy meeting in the first quarter of 2026 (March 19) to maintain the benchmark interest rate at 0.75%, remaining flat with the previous rate level (January 23). This result is fully in line with the consensus expectations of 51 economists in a Bloomberg survey. Since departing from the negative interest rate policy in 2024, the BOJ has raised interest rates several times to 0.75%, setting the highest borrowing cost record since 1995. However, facing severe fluctuations in the external environment, policymakers have chosen to pause the pace of rate hikes this time to prudently assess the economic situation.

There are two key details in this interest rate meeting worthy of market attention. First, the decision was passed with an 8-to-1 vote. The sole dissenting vote came from board member Hajime Takata, who proposed for the second consecutive meeting that the interest rate should be further raised to 1.0%, indicating that there are still internal divisions within the central bank regarding the risk of rising inflation. Second, the BOJ explicitly pointed out in its statement that although the CPI is expected to temporarily fall back below 2% in the short term, the recent substantial increase in crude oil prices caused by the Middle East conflict will bring non-negligible upside pressure to prices.

The core driving factor for the BOJ to hold rates steady this time lies in the impact of Middle East geopolitical conflicts on the global energy market. Oxford Economics points out that Japan, as a country highly dependent on energy imports, is extremely vulnerable to the blow of deteriorating terms of trade. High energy costs may not only push up supply-side inflation again but also suppress the growth of corporate profits and real household income. Analysts believe that this potential "stagflation" risk forces the BOJ to strike a balance between fighting inflation and protecting a fragile economic recovery, thereby slowing down the pace of rate hikes.

Looking ahead, the path of monetary policy will depend on the evolution of internal and external risks. In the short term (1-2 months), the greatest risk lies in the weakness of the yen exchange rate, with the USD/JPY currently approaching the intervention risk zone of 159 to 161. If the Governor releases an overly dovish signal, it may trigger a further sharp depreciation of the yen and exacerbate imported inflation; the market still holds an expectation of up to 37% that the central bank might restart rate hikes in April. In the medium term (3-6 months), if the Shunto wage negotiations can bring strong wage growth as expected and the economy demonstrates sufficient resilience to absorb the oil price shock, the market expects the BOJ to return to a gradual rate hike track in the second half of this year, further pushing interest rates higher.

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