BOJ Holds Firm as Inflation Outlook Rises, Core Rate at Risk

The Bank of Japan (BOJ) decided to keep its policy rate unchanged at 1% on Friday, despite warnings that core inflation could move clearly above its 2% target from the second half of fiscal 2026.

The decision was made by an 8-1 vote, with Board member Hajime Takata proposing raising the rate to 1.25%. The BOJ cited wage increases being passed on to selling prices, higher crude oil prices, and the yen's recent depreciation as reasons for its cautious stance.

Japan's core inflation rate was 1.6% in July, below 2% since most of 2026. The central bank said it would continue raising the policy interest rate as underlying inflation approaches 2% and financial conditions remain accommodative.