BoJ "Politically Paralyzed" at 0.75% as Takaichi Calls Snap Election

The Bank of Japan (BoJ) maintained its key policy rate at 0.75% on Friday, a decision heavily influenced by the sudden dissolution of the House of Representatives by Prime Minister Sanae Takaichi. While the central bank signaled confidence in the virtuous cycle of wages and prices, the looming February 8 election has effectively boxed in monetary policy, leaving the Yen vulnerable to political volatility.

Dissent Signals Hawkish Undercurrents

Despite the “hold” decision, the policy board was far from unified. The vote was 8-1, with board member Hajime Takata casting a dissenting vote, arguing that the price stability target has been met and advocating for an immediate hike to 1.0%.

This dissent stands in stark contrast to the BoJ's traditional consensus-driven approach. With 10-year JGB yields hitting 27-year highs earlier in the session, market pressure for rate alignment is intensifying.

Inflation Outlook Upgraded

In its quarterly outlook report, the BoJ revised its inflation expectations upward, reinforcing the case for future tightening once the political dust settles:

• Fiscal 2025 Core-Core CPI: Upgraded to 3.0% (from 2.8%).
• Fiscal 2026 Core-Core CPI: Upgraded to 2.2% (from 2.0%).

Political Gamble

The central bank's caution coincides with Prime Minister Takaichis high-stakes gamble to dissolve the lower house for a snap election. By creating a political vacuum until February, the administration has likely forced the BoJ to pause until Q2 2026.

GBP/JPY traded firmly near multi-year highs of 214.30 following the decision. Governor Uedas upcoming press conference will be scrutinized for hints on whether the bank views the current political instability as a temporary hurdle or a structural impediment.