TOKYO (Realist English). The Bank of Japan kept its key interest rate unchanged at 0.5% on Thursday but raised its inflation forecasts, reinforcing expectations that it may begin tightening monetary policy later this year.
Following a two-day policy meeting, the BoJ’s board voted unanimously to maintain the current rate — a move widely anticipated by analysts. However, in its latest quarterly outlook report, the central bank revised its fiscal 2025 forecast for core consumer inflation upward from 2.2% to 2.7%, citing continued pressure from rising food prices.
Projections for core inflation in fiscal 2026 and 2027 were also revised slightly higher — a shift that surprised some economists.
“People had expected the BoJ to nudge up fiscal 2025 due to recent data, but most thought they’d leave 2026 and 2027 unchanged,” said Stefan Angrick, Japan economist at Moody’s Analytics. “That all suggests that rate hikes are not just back on the agenda, but could even happen this year.”
The BoJ’s decision comes as the US Federal Reserve signals it may keep rates steady through at least September, resisting pressure from President Donald Trump, who has called repeatedly for lower borrowing costs.
Investors are now awaiting remarks from Governor Kazuo Ueda, who is expected to address the media later on Thursday. Markets will be watching for any signal on how the BoJ views the risks from ongoing tariff uncertainty and recent political instability in Tokyo, where Prime Minister Shigeru Ishiba lost a key election this month.
A 15% US tariff on Japanese goods agreed earlier in July has eased some concerns over bilateral trade tensions, but the BoJ noted in its statement that the outlook remains fragile.
“It remains highly uncertain how trade and other policies in each jurisdiction will evolve and how overseas economic activity and prices will react to them,” the bank said, while acknowledging “positive developments” in recent trade diplomacy.
Analysts see the BoJ walking a fine line: managing persistent inflation and shifting global monetary trends, while navigating domestic political headwinds and trade realignments.