Bank of Japan Holds Rates at 1% but Warns Inflation Could Top 2% as Yen Sits Near 40-Year Low

The Bank of Japan left its benchmark policy rate unchanged at 1% at the conclusion of its two-day meeting, a widely expected decision that followed June's increase to the highest level since 1995. The vote was 8-1, with hawkish board member Hajime Takata dissenting in favour of raising the rate to 1.25% to guard against upside inflation risks. In its quarterly outlook, the central bank warned that core inflation was likely to accelerate to a level clearly above its 2% target in the second half of the fiscal year, citing wage increases feeding into prices, higher crude oil costs and a weaker yen, even though core inflation stood at 1.6% in July. The decision came amid intense focus on the currency, with the yen trading near a 40-year low against the dollar before spiking sharply, a move markets attributed to suspected intervention by Japanese authorities. Economists now debate whether the next rate increase arrives in October or December. Governor Kazuo Ueda's guidance at his press conference was closely parsed for clues on the pace of further tightening.