Investing.com — The Bank of Japan is set to hold its benchmark interest rate steady at 1% at its policy meeting on July 30–31, according to reporting from Nikkei, which cited sources familiar with the matter. The anticipated decision follows the central bank’s landmark move in June to raise key borrowing costs by 25 basis points to a 31-year high.
Despite the rate pause, economists expect central bank officials to raise their real GDP growth forecast for fiscal 2026 to approximately 0.8%, up from 0.5% in April, buoyed by surging artificial intelligence demand and resilient business sentiment. Conversely, core inflation projections for fiscal 2026 are likely to undergo a modest downward adjustment to reflect energy subsidies, while long-term price outlooks remain anchored near the 2% target.
In separate preview notes, both Barclays and Bank of America maintain that a July hold represents a brief tactical pause rather than the conclusion of the monetary tightening cycle. Barclays projects that Governor Kazuo Ueda will strike a hawkish tone during his post-meeting press conference to reinforce the rate-hike path and curb persistent currency weakness.
Bank of America highlighted that its composite indicator, modeled on BOJ methodology, shows medium- to long-term inflation expectations have now crossed the 2% threshold. Consequently, both brokerages pinpoint the central bank’s October monetary policy meeting as the most probable timeline for an additional quarter-point increase.
The monetary trajectory remains particularly critical for global capital markets as the Japanese yen continues to trade near 40-year lows around 163-164 per dollar. This persistent currency differential keeps intense pressure on the yen carry trade, where global investors borrow low-yielding yen to fund positions in higher-yielding international assets.
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