Bank of Japan holds at 1.25%, says inflation has finally hit its 2% target after 13 years

The Bank of Japan kept its key interest rate at 1.25% on Friday 30 October and said, for the first time, that underlying inflation is at its 2% target, more than 13 years after it adopted the goal in 2013, ARY News reported. The decision was taken by an 8-1 vote.

"Underlying CPI inflation is at a level that is generally consistent with the price stability target of two percent," the bank said in its statement.

The numbers

• Policy rate: 1.25%, unchanged. The bank raised it to this level in September, a 31-year high (our report).
• Core inflation: 2.1% in September, up from 1.7% in August.
• Vote: 8 for holding, 1 against.
• Next move: Japanese officials are expected to raise rates again in December as price pressure builds.

Core inflation in Japan rose above 2% at times in the early 2020s, but this is the first time the bank has said the long-term trend has reached the target. The Federal Reserve and the European Central Bank also held their rates this week; the Fed kept its range at 3.75% to 4% (our report).

Why it matters in Pakistan

Japan's rates affect Pakistan in three practical ways:

1. Car and parts prices. Toyota, Honda and Suzuki cars assembled here rely on parts priced in yen. Higher Japanese rates tend to strengthen the yen, which makes those parts dearer in rupees and can feed into the next round of price lists.
2. Imported used cars. Most reconditioned cars come from Japan. A stronger yen raises the landed cost of a Vitz or an Aqua before duty.
3. Japanese loans. Pakistan owes Japan money for projects funded through JICA. A stronger yen raises the rupee cost of repaying yen debt.

Pakistan's own policy rate is 12%, set by the State Bank; follow it on our SBP policy rate page. If you are financing a car, see what a change in rates does to your instalment on the car loan calculator.

What to watch

The December meeting is now the one markets will watch for Japan's next step. For the rupee against the dollar, which moves Pakistan's import bill far more than the yen does, see our USD to PKR page.