The Bank of Japan has maintained its short-term policy interest rate at approximately 1%.
According to reports from Yonhap News, citing the Nihon Keizai Shimbun and Kyodo News, the Bank of Japan decided to keep the interest rate unchanged during a monetary policy meeting held over two days, concluding on July 30, with a majority of policy board members in favor of the decision.
Among the nine policy board members, only one, Takata Hajime, opposed the freeze, suggesting an increase of 0.25 percentage points.
Last month, the Bank of Japan raised the interest rate from approximately 0.75% to 1% to reflect concerns over instability in the Middle East and inflationary pressures. This marks the highest level for Japan's interest rate since September 1995.
Market analysts had anticipated the interest rate freeze this month. Reports indicate that the impact of Middle Eastern instability on the Japanese economy is less severe than previously expected in April, while demand related to artificial intelligence (AI) is projected to significantly boost the economy.
However, the Bank of Japan is closely monitoring the effects of the stalled ceasefire agreement between the U.S. and Iran, as well as the recent earthquake in Kumamoto Prefecture on July 28.
Additionally, expectations of further interest rate hikes by the U.S. Federal Reserve are likely to prevent a narrowing of the interest rate gap between the U.S. and Japan, contributing to downward pressure on the yen.
In its 'Economic and Price Outlook' report released today, the Bank of Japan revised its forecast for real GDP growth in the fiscal year 2026 from 0.5% to 0.6%. The GDP growth forecast for 2027 was also raised by 0.1 percentage points to 0.8%.
Excluding fresh food, the inflation forecast for 2026 was adjusted down by 0.3 percentage points to 2.5%, while the inflation forecast for 2027 was raised by 0.1 percentage points to 2.4%.
The Bank of Japan warned in the report that the underlying inflation rate poses a risk of exceeding the 2% price stability target.
During a press conference in the afternoon, Governor Kazuo Ueda stated, "There is a risk that the underlying inflation rate will exceed the 2% price stability target," adding that the bank will continue to consider interest rate hikes to ensure price stability.
He also reiterated that structural factors make it likely for core prices, excluding temporary and sharp fluctuations, to continue rising.
Ueda emphasized the need to be more aware of inflation risks than ever, noting that companies are actively pursuing wage and price increases, and that medium- to long-term inflation expectations are on the rise.
* This article has been translated by AI.
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