BOJ Keeps Rate Steady, Expects Core Inflation to Surpass 2% in 2026

The Bank of Japan (BOJ) maintained its policy rate at the end of its two-day meeting on Friday, with policymakers opting to keep borrowing costs steady. This move was broadly anticipated by financial markets.

In a warning sign, the central bank projected that core inflation would climb 'clearly above' the 2% threshold from the second half of the 2026 fiscal year, which spans September to March. Several factors were identified in the BOJ's report as contributing to the expected increase in inflation, including the trickle-down of higher wages into retail prices and recent yen depreciation.

The BOJ added that inflation is expected to decline toward 2% after peaking, as the upward pressure from energy prices subsides. For July, Japan's core inflation stood at 1.6%, running below the 2% goal throughout most of 2026.