Bank of Japan Set to Keep Inflation Warning at This Week's Meeting

The Bank of Japan is likely to keep its warning over the risk of inflation overshooting its 2% target when it meets on July 30-31, while signalling that those risks have not increased significantly from three months ago, according to sources familiar with its thinking. In a quarterly outlook report due at the meeting, the central bank is expected to highlight lingering inflation pressures stemming from the Middle East conflict, robust global demand tied to artificial intelligence, and rising import costs driven by a weak yen. At the same time, policymakers believe the likelihood of a worst-case scenario, in which severe supply disruptions trigger a sharp price surge and force rapid rate increases, has diminished since the spring. The meeting follows the bank's earlier move to raise its policy rate to 1%, its highest in decades, as it continues a gradual exit from years of ultra-loose policy. Analysts say how the BOJ characterises current financial conditions, including ongoing downward pressure on the yen, will be key to gauging the timing of its next rate hike, with markets watching Governor Ueda's guidance closely.