BOJ Holds Rates Steady Amid Warning of Exceeding 2% Inflation Target

The Bank of Japan (BOJ) has kept its policy rate steady at 1% despite warning that underlying inflation in the country could exceed its 2% target. In an 8-1 decision, BOJ officials rejected a proposal by board member Hajime Takata to raise rates to 1.25%. The move comes as speculation continues to swirl around whether the BOJ will boost rates at a faster pace due to surging bond yields and a weak yen.

The yen has weakened to around 163 against the dollar, although it rallied on Thursday night to trade as strong as 157.96 to the greenback. Tokyo had conducted an intervention by selling dollars and buying yen, while U.S. authorities executed a 'rate check,' a move usually seen as a precursor to intervention.

BOJ Governor Kazuo Ueda's communications after the policy decision will be closely watched, with analysts saying that his statements will give markets their cue on future hikes. In a June 25 speech, BOJ Board Member Naoki Tamura said that underlying inflation has generally reached the BOJ's 2% target and there is a high risk of price developments deviating upward from the Bank's baseline scenario.