BOJ Signals Room for Further Hikes Amid Price Pressures

The Bank of Japan (BOJ) is set to maintain interest rates steady at 1% in its two-day meeting ending on Friday, but will leave room for further hikes through hawkish communication. Governor Kazuo Ueda faces the challenge of balancing talk-down measures for yen bears with avoiding antagonizing a government seen as critical of policy tightening.

The BOJ's quarterly outlook report and Ueda's post-meeting news briefing are expected to provide clues on when interest rates may rise again. Analysts at Mitsubishi UFJ Morgan Stanley Securities predict the next rate increase will come in December, but could be pushed forward to September or October if inflation risks escalate.

The BOJ is likely to revise up its growth forecast for fiscal 2026 due to receding fears of a severe hit from the Middle East conflict. However, it may cut its inflation forecast due to subsidies and lower oil costs.