BoJ Holds Policy Rate at 1.25% in October but Says Hikes Will Continue: What It Means for Mortgages

The bottom line: no change this time, but more hikes are coming

At its monetary policy meeting on 29–30 October 2026, the Bank of Japan (BoJ) voted 8 to 1 to keep its policy rate, the uncollateralized overnight call rate, at around 1.25%^[1]. This was the first meeting since September's hike, so a pause was widely expected. The Outlook for Economic Activity and Prices released the same day, however, states plainly that the Bank expects to continue raising the policy rate as economic, price and financial conditions warrant^[2]. For anyone planning to buy property in Japan with a mortgage, the direction of interest rates has not changed. The hold is an intermission, not an end point.

What was decided on 30 October

• Policy rate held at around 1.25%, by a vote of 8 to 1. The lone dissenter, board member Takata, argued that underlying inflation had reached the price stability target and that the Bank should move faster toward a neutral rate; his proposal to raise the rate to around 1.5% was rejected^[1].
• Faster sales of ETF holdings. The BoJ began selling the exchange-traded funds it bought during the easing years in January 2026, at a pace of about ¥330 billion a year at book value, equal to roughly 0.05% of total market turnover. The board unanimously decided that from January 2027 the pace will rise to about ¥860 billion a year at book value, or roughly 0.1% of turnover, which is about ¥2.46 trillion at market value^[1]. At that pace, the time needed to sell the entire portfolio falls from about 112 years to about 43 years^[3].
• The Outlook Report's key judgment: underlying inflation, excluding temporary factors, is now at a level broadly consistent with the 2% price stability target and is expected to stay there^[2]. NHK summarized the judgment as reaching 2% being "a milestone" and reported that the Bank's stance is that rate hikes will continue^[6].

Background: two hikes already this year

The timeline makes the picture clearer. On 16 June 2026 the BoJ raised the policy rate to around 1.0% (7 votes to 1) and set the basic loan rate at 1.25%^[5]. On 18 September it raised again, taking the policy rate to around 1.25% (7 votes to 2) and the basic loan rate to 1.5%, effective 24 September^[4]. Two hikes in less than four months were followed by October's pause, which gives the Bank time to gauge the effect of the earlier moves.

The September statement contained one line that bears directly on housing: residential investment is on a declining trend^[4]. The October Outlook Report goes further, projecting that housing investment will gradually decline, reflecting higher housing prices and demographic factors^[2]. The BoJ itself, in other words, sees high prices and rising rates weighing on housing demand.

The Outlook Report: inflation forecasts raised, the case for hikes strengthened

The policy board's median forecasts for consumer prices excluding fresh food are +2.5% for fiscal 2026, +2.6% for fiscal 2027 and +2.0% for fiscal 2028; the medians for real GDP growth are +0.7%, +0.7% and +0.8% respectively^[2]. Compared with the July forecasts, growth is broadly unchanged, but the fiscal 2027 inflation forecast has been revised up somewhat because of the rise in crude oil prices since the summer^[2].

The report also flags two sources of uncertainty. One is oil: the forecasts assume Dubai crude falls from a starting point of around $105 a barrel to around $70 by the end of the projection period^[2]. The other is the temporary cut in the consumption tax on food now before the Diet, which the forecasts do not incorporate. If applied in full as set out in the tax reform outline approved by the Cabinet in September, a mechanical calculation suggests it would lower fiscal 2027 consumer price inflation by about 1.3 percentage points while most likely lifting growth^[2].

On risks the report is direct: risks to the inflation outlook are skewed to the upside, firms are becoming more aggressive in wage and price setting, and underlying inflation could overshoot the 2% target; on the financial side, the Bank says developments in asset prices, including real estate prices and stock prices, continue to warrant attention^[2].

What it means for buyers

Variable-rate mortgages: no increase this time, but do not treat that as normal. Most variable-rate mortgages in Japan are priced off each bank's short-term prime rate, which moves with the BoJ's policy rate. October's hold means no new trigger for an increase. But the increases that follow the June and September hikes reach monthly payments only after each bank's semi-annual rate review, so an unchanged bill does not mean an unchanged rate^[5][4]. With the BoJ stating that hikes will continue, a financing plan should allow for the policy rate to rise another step or two.

Fixed-rate mortgages: watch long-term yields, not the policy rate. Full-term fixed loans and fixed periods of ten years or more track long-term government bond yields, which reflect market expectations for the future path of rates and inflation. The upward revision to the fiscal 2027 inflation forecast and the emphasis on upside risk are exactly the kind of information that shows up in fixed rates first^[2]. If you want to lock in a rate, the timing of your decision matters more than waiting for the next meeting's result.

Owner-occupiers and investors should run different numbers. For an owner-occupier the central question is whether payments remain affordable relative to income after another rise. A buyer relying on rent to service the loan must also ask whether rents can keep pace with rates. The BoJ expects housing investment to decline gradually in response to higher prices and demographics^[2], which means new supply is unlikely to surge, but also that demand is under pressure. Extrapolating the gains of the past few years is unwise.

Overseas buyers: the exchange rate is a second variable. The BoJ lists exchange rate movements among the main risks to its outlook^[2]. For buyers funding a Japanese purchase in foreign currency, rising yen interest rates often come with shifts in the yen, so both the purchase budget and future returns should be tested under several exchange rate scenarios.

Summary

On 30 October the BoJ held its policy rate at 1.25%, decided to speed up ETF sales and, in its Outlook Report, judged underlying inflation to be broadly consistent with the 2% target while committing to further hikes^[1][2]. For buyers this is not a signal that rates have peaked. It marks a phase in which the pace of tightening slows but the direction is unchanged. If you are weighing variable against fixed rates, or deciding how much to borrow and over how long, please get in touch. We can work through the repayment burden under several rate scenarios for a specific property and your own finances.