BoJ signals higher rates despite holding at 1%

The Bank of Japan held its benchmark rate at 1% on July 31, an outcome every economist surveyed had expected after June’s hike to a 31-year high. The BoJ also intervenes in currency markets to protect the yen trading near 40-year lows.

The Japanese policy board voted 8 to 1 to keep the benchmark rate at 1%. Board member Hajime Takata was the only member to dissent once again, pushing for a hike to 1.25%, as the inflation outlook turned hawkish, according to reports. 

Economists were expecting the board to keep the interest rates steady, nonetheless. However, the market was curious to know the tone the BoJ would take moving forward. In its announcement, the BoJ seemingly took a hawkish stance, cautioning in its outlook report that core inflation is likely to accelerate. The BoJ expects core inflation to rise above 2% starting in the second half of the fiscal year. 

Inflation outlook turns hawkish despite the hold

Japan’s core inflation for July came in at 1.6%, meaning it has actually sat below the BOJ’s 2% target for most of the year so far. Despite the steady trend, the BoJ trimmed its fiscal 2026 core inflation forecast to 2.5% from 2.8% projected in April. The new adjustment is a downward revision that, on its face, looks dovish.

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