BOJ Holds Rates at 1% but Leaves Door Open for Further Tightening

On July 27, Reuters reported that the Bank of Japan (BOJ) is expected to keep its policy rate at 1% at the July 30-31 meeting while signalling that additional hikes remain possible. Analysts at Mitsubishi UFJ Morgan Stanley Securities said the BOJ continues to view upside risks to the price outlook as dominant and expects the next increase could occur in December, though a move as early as September or October is possible if inflation overshoots its 2% target or the yen’s decline intensifies.

ReutersThe Bank of Japan is expected to keep rates unchanged this week but may signal further rate hikes, with rising inflation pressures and a weakening yen becoming policy focuses.

• Growth outlook: Sources told Reuters that the BOJ’s quarterly report is likely to raise its fiscal 2026 growth forecast, reflecting receding fears of a severe hit from the Middle East conflict.

Reuters

• Inflation outlook: The same sources said the bank may modestly lower its inflation forecast because of subsidy effects and a drop in oil prices from April, yet it will still warn that inflation could exceed the 2% target. Reuters’ conclusion notes core-consumer inflation is projected at 2.8% for fiscal 2026, with overall inflation potentially reaching 5%.

The Bank of Japan is expected to keep rates unchanged this week but may signal further rate hikes, with rising inflation pressures and a weakening yen becoming policy focuses.

• Corporate expectations: The BOJ’s “Tankan” survey showed corporate inflation expectations at record levels, and its regional report linked the U.S.–Israeli war on Iran to firms planning price hikes later in the year.

Reuters

• Currency pressure: The yen hit a 40-year low against the dollar in July, a move attributed to rising oil prices and expectations of U.S. rate hikes.

The Bank of Japan is expected to keep rates unchanged this week but may signal further rate hikes, with rising inflation pressures and a weakening yen becoming policy focuses.

Governor Kazuo Ueda faces a dual dilemma: using hawkish communication to curb yen-short bets while avoiding conflict with Prime Minister Sanae Takaichi, whose administration favours growth-stimulating spending. The BOJ is expected to maintain its warning about the risk of inflation overshooting its 2% target, even as it signals that downside growth risks and upside inflation risks have both eased compared with three months earlier. Analysts polled by Reuters anticipate a rate rise to 1.25% by the end of December, with the earliest possible move in October.

Reuters

The BOJ’s July 30-31 meeting will release a quarterly outlook report and a post-meeting briefing by Governor Ueda, which market participants will scrutinise for clues on the timing of any future rate adjustments. Consumer-inflation data in the coming months are expected to be a decisive factor in shaping the bank’s next policy step.

Reuters