Bank of Japan expected to keep rates at 1% and signal tightening

The Bank of Japan is expected to leave interest rates at 1% while signaling additional tightening ahead, as policymakers seek to stabilize the yen following government intervention in currency markets and assess the country’s improving economic outlook.

Investors are looking to the BOJ’s updated outlook report and Governor Kazuo Ueda’s briefing for signals on the pace of future tightening.

The central bank is expected to raise its economic growth forecast for fiscal 2026 while slightly trimming its inflation projection, although persistent import-price pressures from the weaker yen are expected to keep inflation elevated. Analysts also said policy board member Hajime Takata may dissent by proposing an immediate quarter-point rate increase.

The central bank’s decision follows the Federal Reserve’s move to hold interest rates steady.

Analysts expected the BOJ to continue gradually normalizing policy after June’s rate hike, with most forecasting another increase before the end of the year. Recent data showing stronger manufacturing activity and firmer inflation in Tokyo suggest the economy has remained resilient despite higher energy costs and disruptions stemming from the Middle East conflict.