Bank of Japan holds its policy rate at 1% in an 8 to 1 vote and warns core inflation will top 2%

The Bank of Japan left its short-term policy rate unchanged at 1% on Friday, 31 July 2026, keeping borrowing costs at their highest level since September 1995 after a 25 basis point hike in June. The decision was approved by an 8 to 1 vote, with board member Hajime Takata dissenting and calling for a hike to 1.25%.

In its quarterly outlook, the bank warned that core inflation is likely to run clearly above its 2% target from the second half of fiscal 2026, citing wage increases being passed into selling prices, higher crude oil prices and the recent depreciation of the yen. Even so, it cut its fiscal 2026 core inflation forecast to 2.5% from 2.8% and raised its growth projection for that year to 0.6% from 0.5%. For fiscal 2027 it lifted core inflation to 2.4% from 2.3% and trimmed growth to 0.8% from 0.9%.

Reports indicated that Tokyo intervened in the currency market on Thursday night, 30 July. The yen, which had been trading around 163 per dollar, strengthened to as much as 157.96. The 10 year Japanese government bond yield remains at about 2.8%, and Japan's core inflation for July came in at 1.6%.