BOJ to Signal More Rate Hikes Amid Rising Inflation Pressures

The Bank of Japan is set to keep interest rates steady at its two-day meeting ending on July 29, but signal more rate hikes in the coming months due to increasing inflationary pressures.

The central bank will likely maintain its hawkish communication as it faces mounting economic risks from the Middle East war, a weak yen, and robust global AI demand. Analysts say Governor Kazuo Ueda is caught between talking down the yen bears through hawkish comments and not antagonizing the government, which is seen as critical of further policy tightening.

The BOJ's quarterly outlook report will be closely watched for clues on when it could raise borrowing costs again. The board is expected to revise up its growth forecast for fiscal 2026 due to receding fears of a severe hit from the Middle East conflict, but cut its inflation forecast due to subsidies and a drop in oil costs.