Source: Sharecast
The central bank kept its short-term interest rate at 0.5%, in line with consensus.
However, markets were surprised by a split in the vote, after two board members proposed a hike to 0.75%.
Analysts said the unexpected split indicated that the BoJ was now more likely to hike borrowing costs in the near future.
Charu Chanana, chief investment strategist at Saxo, told Reuters: “While the majority still favour a steady path, the presence of two board members voting against today’s decision suggests the debate is tilting towards quicker normalisation.”
Speaking at the press conference after the decision, BoJ governor Kazuo Ueda said: “My personal view is that underlying inflation is still somewhat below 2%, but approaching that level.
“Upside price pressure is of course among risks. But I feel that we also need to be mindful of downside economic and price risks, given the impact from US tariffs will start to intensify.”
Headline inflation in Japan has slowed to 2.7% from 3.1%.
The BoJ also surprised markets by announcing plans to start shifting its substantial ETF holdings sooner than expected.
It accumulated the assets over the last decade.
The Nikkei 225 fell following the news, reversing earlier strong gains.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: “The BoJ maintained rates, which is positive because the net move is expected to be a rate hike.
“But it also announced it will start selling about ¥330bn worth of ETFs per year. Considering the BoJ has become a major holder of domestic assets, the announcement did little to support investor sentiment.”