The Bank of Japan (BOJ) left its policy rate unchanged at the end of its two-day meeting on Friday, while warning that the nation’s core inflation is on track to rise above its 2% target later this fiscal year. The pause follows a rate increase from 0.75% to 1% in June.
BOJ policymakers opted to keep borrowing costs steady, a move broadly anticipated by financial markets. In its economic outlook, the central bank projected that core inflation would climb “clearly above” the 2% threshold from the second half of the 2026 fiscal year, spanning September to March. Several factors were identified in the BOJ’s report, including the trickle-down of higher wages into retail prices, elevated crude oil costs, and recent yen depreciation.
The BOJ added that inflation is expected to decline toward 2% after peaking, as the upward pressure from energy prices subsides. For July, Japan’s core inflation stood at 1.6% and has run below the 2% goal throughout most of 2026.
Thursday night saw the yen surge against the U.S. dollar, jumping from approximately JPY 162.80 to JPY 157 in the space of an hour. Market observers attributed the move to likely intervention by Japanese authorities after the currency traded near lows last seen four decades ago.
Looking ahead, attention will turn to the press conference to be held by BOJ Governor Kazuo Ueda later Friday. Investors are expected to scrutinize his remarks for guidance on when the next rate increase might occur, with the potential for further volatility in the yen depending on his statements.
