BOJ Keeps Rates Unchanged as Expected, Trims Inflation Forecast Amid Middle East Concerns

The Bank of Japan (BOJ) maintained its benchmark overnight call rate at 1.0%, as widely expected, in a vote of 8-1. The decision comes after the central bank paused to assess the effects of a 25 basis point hike in June.

Board member Hajime Takata was the sole dissenter, advocating for another 25 basis point increase. The BOJ cited caution over the Middle East conflict and a weak yen as factors influencing its decision.

The central bank trimmed its core consumer price index (CPI) inflation forecast, expecting it to trend between 2.4% and 2.7% in fiscal 2026, down from its April estimate of 2.8% to 3.0%. The softer CPI outlook was largely driven by expectations of more government subsidies.

The BOJ also slightly increased its gross domestic product (GDP) forecast for the current year, projecting a growth rate of 0.6% to 0.7%, up from 0.4% to 0.7%. The central bank emphasized that Japanese producer price index inflation rose sharply this year, which is expected to spill over into consumer prices.