The Bank of Japan's Policy Board decided to maintain the uncollateralized overnight call rate at around 0.75 percent during its March 2026 meeting, primarily due to significant uncertainties stemming from increased tensions in the Middle East. While Japan's economy showed moderate recovery and a virtuous cycle from income to spending, members expressed concerns about rising crude oil prices and their potential to reignite inflation or cause an economic slowdown. Discussions highlighted a readiness to adjust the policy rate further if the economic and price outlook is realized, with some members advocating for more proactive tightening to address upside inflation risks and negative real interest rates.
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The Bank of Japan had been conducting money market operations to encourage the uncollateralized overnight call rate to remain at around 0.75 percent.
The Bank of Japan Policy Board held a Monetary Policy Meeting in Tokyo on Wednesday, March 18, 2026, from 2:00 p.m. to 3:53 p.m., and on Thursday, March 19, from 9:00 a.m. to 11:39 a.m.
The minutes of this meeting were approved by the Policy Board at the Monetary Policy Meeting held on April 27 and 28, 2026.
Crude oil prices had risen significantly, mainly against the background of the de facto closure of the Strait of Hormuz.
Japan's economy had recovered moderately, although some weakness had been seen in part.
Market sentiment deteriorated significantly since March 2026 due to increased tension over the situation in the Middle East.
The year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) had recently fallen to around 2 percent.
The JGB reduction plan was decided at the June 2025 meeting.
The Tokyo Stock Price Index (TOPIX) was more or less unchanged over the intermeeting period, initially rising after the House of Representatives election but declining due to the Middle East situation.
Yields on 10-year JGBs were more or less unchanged, reflecting market attention to inflationary pressure and economic downturn concerns stemming from the Middle East situation.
Overseas economies had grown moderately on the whole, with some weakness in parts due to trade and other policies.
European economies had shown resilience, particularly in domestic demand, despite some remaining weakness.
The Chinese economy had decelerated, mainly due to tariff increases, diminishing effects of government policies, and adjustment pressure in the real estate market.
Overseas economies were projected to return to a growth path, partly supported by global AI-related demand, assuming the Middle East situation gradually moderates.
The economy was likely to continue growing moderately, supported by returning overseas economies, intensifying virtuous cycle from income to spending, government measures, and accommodative financial conditions.
Exports were likely to remain more or less flat for a while, as solid global AI-related demand would be offset by a decline in automobile exports to the Middle East and supply chain bottlenecks.
Industrial production was expected to remain more or less flat on the whole, influenced by global AI-related demand, resilient domestic demand, and production adjustments due to Middle East tensions.
Corporate profits remained at high levels on the whole, despite downward effects from tariffs in manufacturing.
Business fixed investment had been on a moderate increasing trend and was likely to continue, supported by order backlogs and labor-saving investment, but facing pressure from higher crude oil prices and construction costs.
Private consumption had been resilient, supported by improved employment and income, despite being affected by price rises.
The consumption activity index (CAI) for January 2026 increased relative to the October-December 2025 quarter, mainly for nondurable goods.
Private consumption since February seemed to have declined slightly from the previous month.
Consumer sentiment had seen a clear improvement recently due to a positive real wage growth rate and a decline in projected inflation.
The employment and income situation had improved moderately.
Nominal wages per employee continued to increase steadily, albeit with fluctuations.
Crude oil prices had risen significantly recently due to increased tension over the situation in the Middle East.
The year-on-year rate of increase in the producer price index (PPI) had been on a decelerating trend, recently around 2 percent.
The year-on-year rate of increase in the services producer price index (SPPI, excluding international transportation) had been on a decelerating trend, recently around 2.5 percent.
Inflation expectations had risen moderately.
The year-on-year rate of increase in the CPI was likely to temporarily decelerate to a level below 2 percent in the short run.
The CPI rate of increase was expected to come under upward pressure again thereafter, affected by the surge in crude oil prices.
Japan's financial conditions had been accommodative.
Real interest rates had been negative.
Firms' funding costs had increased.
Firms' demand for funds had increased moderately on the back of economic activity recovery and M&A.
Financial institutions' lending attitudes as perceived by firms had been accommodative.
The year-on-year rate of increase in the amount outstanding of bank lending had been at around 5 percent.
The year-on-year rate of change in the money stock had been in the range of 1.5-2.0 percent.
Members shared the view that market sentiment had deteriorated significantly since March 2026 due to increased tension over the situation in the Middle East.
Some members recognized that volatility in financial markets had risen, with crude oil prices rising significantly and stock prices declining in major economies.
One member pointed out that the so-called flight to quality seemed to have been constrained even with risk sentiment becoming cautious, partly because government bond yields were affected by growing global concerns over rising inflation.
A few members pointed out that future developments in overseas economies depended on the extent to which possible negative shocks from the Middle East would be offset by demand for IT-related goods and fiscal policy.
A significant slowdown in the global economy and resulting downward deviation in prices was unlikely in the current baseline scenario, given strong IT-related demand and expansionary macroeconomic policy.
Many members recognized that economic data for the past few months indicated the virtuous cycle from income to spending had been maintained in both corporate and household sectors.
One member pointed out that economic downside effects stemming from the increased tension over the Middle East, such as rising gasoline prices, had already started to emerge in Japan.
Many members recognized that the impact of the Middle East situation on Japan's economy depended heavily on its duration and form, and there was not enough information to revise the baseline outlook.
One member viewed the Middle East situation and associated rise in crude oil prices as a risk scenario, not requiring a revision to the baseline scenario for economic activity and prices yet.
One member noted that Japan's potential growth rate in recent years had been supported by solid total factor productivity (TFP).
One member expressed the view that inbound tourism demand remained favorable on the whole, on the back of the yen's depreciation, with limited impact from the decline in Chinese tourists.
One member pointed out that Japan's exports could be indirectly affected by Middle East tensions through trade with economies such as Asia and Europe, despite the Middle East's small direct share.
One member expressed the view that Japanese firms maintained their positive business fixed investment stance, aiming to address geopolitical risks and explore new areas of growth.
Business fixed investment was expected to remain solid, considering factors such as the expansion in AI-related demand, high corporate profits, and government support for strategic sectors.
Listed firms' full-year financial results for fiscal 2025 were expected to reach record high levels, partly due to the expansion of the AI boom significantly pushing up semiconductor-related firms' profits.
Profits after tax for small and medium-sized firms had seen a clear increase in many industries, suggesting favorable business performance had spread throughout the corporate sector.
One member recognized that a recent significant change was that private consumption, previously pushed down by high prices, had finally started to turn upward as food price increases waned.
Government income transfer measures, such as free high school tuition and free elementary school lunches, were expected to push up consumption through increased household disposable income.
Many large firms had met in full or nearly full the demands of their labor unions in annual spring labor-management wage negotiations.
It was highly likely that a wide range of firms would continue to raise wages steadily in 2026.
A few members said that it was necessary to continue to monitor developments toward the overall final outcome of labor-management wage negotiations, including those at small and micro firms, considering the situation in the Middle East.
One member noted that the rate of increase in the price of goods excluding food and energy and of services had been at around 1.5 percent, remaining stable below 2 percent.