BOJ holds rates at 1%, warns inflation may exceed 2% target

Japan’s central bank left its policy rate unchanged at 1% on July 31, 2026, and warned that underlying inflation could rise above the 2% target.

The 8-1 decision saw board member Hajime Takata dissent in favor of a quarter-point increase.

Bloomberg reported before the decision that BOJ officials are open to moving faster than the market’s expectation of one hike every six months.

The yen rallied on July 30 to as strong as 157.96 per dollar from around 163, while the benchmark 10-year government bond yield held near 2.8%.

Nikkei reported that Tokyo intervened by selling dollars and buying yen, and that U.S. authorities conducted a rate check, often a precursor to intervention.

Analysts said Governor Kazuo Ueda’s post-meeting press conference would be crucial. Wataru Aso of RBC BlueBay Asset Management said in a note that the focal point is whether Ueda signals an acceleration in the pace of future hikes.

In a June 25 speech, board member Naoki Tamura said underlying inflation has generally reached the 2% target and warned of a high risk of overshooting.

He noted that core inflation, held down by government subsidies, has been above 2% when the subsidies are removed.

Japan’s core consumer inflation for July 2026 was 1.6%, and has remained below 2% for most of the year.