BOJ set to keep policy rate steady to gauge impact of hike to 31-yr high

The Bank of Japan is likely to leave its benchmark interest rate unchanged at its two-day policy meeting from Thursday to assess the impact of its recent rate hike to a 31-year-high and the recent strong earthquake in southwestern Japan.

Many BOJ watchers expect the Policy Board to maintain the rate at 1.0 percent after raising it from 0.75 percent in mid-June, with the central bank also seen as wanting to assess the impact of higher crude oil prices and the weaker yen on inflation and businesses.

Japan’s economy is heavily reliant on fuel imports that have been disrupted due to the Middle East conflict, while the yen’s depreciation has added to inflationary pressures by driving up import costs.

In the updated quarterly economic growth outlooks to be released after the meeting, the central bank is expected to revise upward the estimate for the current fiscal year on strong demand related to artificial intelligence, sources close to the matter said.

It is also expected to monitor the fallout from the magnitude 7.1 earthquake that on Tuesday struck Kumamoto Prefecture and nearby areas, home to plants of major automakers such as Toyota Motor Corp. and semiconductor makers, including Taiwan Semiconductor Manufacturing Co., the world’s largest contract chipmaker.

The BOJ raised the key rate in June for the first time since December, warning that higher crude oil prices due to the Middle East conflict and the weak yen could strengthen inflation risks.

As many policymakers view the current financial conditions as accommodative, raising concerns that the economy could overheat and push prices higher, BOJ has maintained its stance of continuing to raise interest rates if prices and the economy move within expectations.

After the meeting on Friday, the bank will release its economic outlook for fiscal 2026 through fiscal 2028. In the previous report released in April, the bank cut its growth outlook for the current fiscal year through March by half to 0.5 percent, citing uncertainties over the Middle East conflict.

The bank is expected to upwardly revise the outlook, as progress in the government’s efforts to secure oil imports from non-Middle East oil producers, mainly the United States, has eased concerns about supplies, the sources said.

BOJ Governor Kazuo Ueda is scheduled to hold a post-meeting press conference for the first time since skipping the previous meeting due to hospitalization for a liver illness.

© KYODO