BOJ Holds Rates Steady Amid Rising Inflation Pressure

The Bank of Japan (BOJ) left its policy rate unchanged at 1% in July, as widely expected after a historic rate hike in June.

However, despite this decision appearing dovish, only one board member backed an immediate rate hike, while the case for another 25-basis-point rate hike before the end of 2026 is taking shape.

The BOJ's focus on headline inflation tells only half the story. Consumer inflation in Japan rose 1.7% year over year (yoy) in June, with core inflation edging up to 1.6%, both below the BOJ's 2% target.

But this comparison is somewhat misleading, as Japan continues to cushion households with extensive government subsidies, including a petrol price ceiling and support for electricity and natural gas bills.