BOJ Holds Rates Steady at 1%, Warns of Inflation Overrun

The Bank of Japan (BOJ) maintained its policy rate at 1% on Friday and warned that inflation may top 2% from September to March before slowing down.

The decision was made in an 8-1 vote, with the BOJ expecting core inflation to accelerate due to companies passing on rising labor costs, increasing crude prices, and a weakening yen. This will lead to inflation exceeding its target, but it is expected to ease back toward 2% as oil prices decline.

The BOJ emphasized that it is not finished with raising its policy rate and will continue to do so to prevent the risk of inflation running above target and having an adverse impact on the economy. Ayano Sato, a newly appointed BOJ board member, signaled that inflation expectations in Japan are not yet robust.

The decision led to the yen jumping to 157.96, with some analysts speculating about potential currency intervention. Masahiko Loo, a senior fixed-income strategist at State Street Investment Management, noted that the MOF remains uncomfortable with excessive yen weakness and views the current level as a 'zone' around 162-165 rather than a specific target.