Change in Financial Market Operations Guidelines
Overview
On September 18, 2026, the Bank of Japan decided at a Policy Board meeting on monetary policy to change its guidelines for financial market operations until the next meeting, encouraging the uncollateralized overnight call rate to remain at around 1.25%. The applicable interest rate under the Complementary Deposit Facility will be 1.25%, and the basic loan rate will be 1.5%, both effective September 24. For the Climate Response Operations, the lending rate will be changed to a floating rate, and ceilings will be set on the total amount of lending and other items. The Bank judged that the economy was recovering moderately despite some weakness, and that the underlying rate of increase in prices was approaching 2%. It indicated that it would continue raising the policy interest rate and adjusting the degree of monetary easing in light of economic, price, and financial developments.
Key points
- The guidelines were changed to encourage the uncollateralized overnight call rate to remain at around 1.25%.
- The applicable interest rate under the Complementary Deposit Facility will be 1.25%, and the basic loan rate will be 1.5%, both effective September 24.
- The lending rate for the Climate Response Operations will be changed to a floating rate, and ceilings will be set on the total amount of lending and other items.
- With the underlying rate of increase in prices approaching 2%, the Bank judged that adjusting the degree of monetary easing was appropriate.
Overview
At its Policy Board meeting on monetary policy on September 18, 2026, the Bank of Japan decided on guidelines for financial market operations until the next monetary policy meeting, taking into account current and projected economic and price developments, risk factors, and financial conditions. The economy is recovering moderately despite some weakness caused by the situation in the Middle East, while global AI-related demand and various government measures are expected to support the outlook.
On the price front, upward pressure has continued against a backdrop of higher crude oil prices, yen depreciation, expanding AI-related demand, and the pass-through of wage increases to sales prices, while medium- to long-term expected rates of price increase have also risen. The Bank of Japan judged that economic and price developments were generally progressing in line with the central outlook in the Outlook for Economic Activity and Prices.
Impact
The Bank of Japan expects accommodative financial conditions to remain in place after the policy interest rate change and to continue providing firm support for economic activity.
The Climate Response Operations will be revised as a framework for providing stable support for private-sector responses to climate change while ensuring the smooth operation of financial market adjustments.
Details
Under the new guidelines for financial market operations, the uncollateralized overnight call rate will be encouraged to remain at around 1.25%. The applicable rate under the Complementary Deposit Facility, as the interest rate applied to the portion of current account deposits at the Bank of Japan excluding the portion corresponding to required reserves, will be 1.25%, while the basic loan rate under the Complementary Lending Facility will be 1.5%. These two rates will apply from September 24, 2026. The basic discount rate will also be 1.5%, although the handling of bill discounting is currently suspended.
Under the Climate Response Operations, the lending rate will be changed to a floating rate, and ceilings will be set on the total amount of lending and other items. Lending rates will also be reviewed for the Disaster Area Financial Institution Support Operations and the Common Collateral Funds-Supplying Operations. In light of recent usage and other factors, the Great East Japan Earthquake will be removed from the disasters covered with the May 2027 lending.
Regarding current economic conditions, exports and industrial production have begun to increase, albeit moderately, and corporate profits have remained at high levels. Business fixed investment is on a moderate upward trend, and private consumption is firm, while housing investment is on a declining trend and public investment is within a broadly flat range. Financial conditions remain accommodative, the year-on-year rate of increase in the consumer price index excluding fresh food is in the upper 1% range recently, and expected rates of price increase are rising moderately.
Looking ahead, although rising crude oil prices will exert downward pressure, AI-related demand, various government measures, and accommodative financial conditions are expected to support the economy and sustain moderate growth. From the second half of fiscal 2026 onward, the year-on-year rate of increase in the consumer price index excluding fresh food is expected to rise to a level clearly above 2%, then decline toward around 2%. The underlying rate of increase is expected to reach a level broadly consistent with the price stability target from the second half of fiscal 2026 through fiscal 2027.
Going forward, the Bank will raise the policy interest rate and adjust the degree of monetary easing in response to economic, price, and financial developments. The timing and pace of adjustment will be considered while assessing the likelihood of realizing the central outlook and its risks, including developments in the situation in the Middle East, AI-related demand, and exchange rate fluctuations. The Bank will also remain attentive to the risk that the underlying rate of increase in prices could exceed the 2% target and conduct monetary policy from the perspective of stabilizing the underlying rate of increase at around 2%.