BOJ Signals Further Rate Hikes as Japan's Yen Continues to Slide

The Bank of Japan (BOJ) left interest rates unchanged at 1% on July 31, but delivered a hawkish signal by warning that underlying inflation could exceed its 2% target. This is the first time the BOJ has made such a statement, and it signals further rate hikes in response to government efforts to prop up the yen.

The central bank also highlighted inflationary pressures from robust global demand for AI-related goods and services, as well as the impact of the Middle East conflict. BOJ governor Kazuo Ueda emphasized that the central bank will pay close attention to these risks and consider further rate hikes if necessary.

BOJ member Hajime Takata was the sole dissenter to the decision, calling for a rate hike to 1.25% to respond to inflationary risks from external demand shocks. The BOJ's decision came after Japan conducted yen-buying intervention in New York markets on July 30, which failed to give the yen a sustained boost.