BOJ to Maintain Inflation Warning as Worst-Case Scenario Likelihood Diminishes

Bank of Japan (BOJ) policymakers are expected to maintain their warning about inflation risks exceeding the 2% target during next week's meeting. According to central bank insiders, the upcoming quarterly outlook report will highlight ongoing concerns from Middle East tensions, strong global demand for artificial intelligence, and elevated import prices caused by a weak yen.

The BOJ assesses that the likelihood of a worst-case scenario has diminished over recent months. In June, when interest rates were increased, the central bank stated, 'There is a risk of underlying consumer inflation deviating upward from our 2% target.' Sources expect this exact language to feature again in the upcoming report.

This shift in tone contrasts with April's warning of a 'big overshoot in inflation,' which followed market volatility after U.S.-Israeli strikes on Iran. With immediate oil-driven price shocks abating, policymakers are currently evaluating how effectively businesses pass rising costs onto consumers.