BOJ Board Divided on Interest Rate Hikes Amid Rising Oil Risks

The Bank of Japan's (BOJ) Board is divided on whether to hold interest rates steady or hike faster than markets expect, according to the Summary of Opinions from its July 30-31 policy meeting. Some members want to maintain the current pace to assess the impact of previous hikes, while others argue that conditions remain accommodative enough for further tightening.

One opinion suggests that the pace of hikes could end up faster than market expectations given rising upside risks to prices. Members noted that Japan's economy is recovering moderately but faces crosscurrents, with Middle East tensions weighing on activity and AI-related demand offsetting the drag, while yen weakness cuts both ways.

Underlying CPI inflation is expected to reach a level broadly consistent with the 2 percent target between H2 fiscal 2026 and fiscal 2027. Crude oil and naphtha prices have eased from their April peaks due to delayed tankers exiting the Persian Gulf, though members warned conditions could tighten again once that effect fades.