BOJ holds rates, signals hawkish stance

The Japan — Bank of Japan is set to keep its short-term interest rate steady at 1% at its July meeting, but is expected to signal a hawkish stance, indicating readiness to continue raising borrowing costs. This comes amid mounting price pressures from a weak yen and the Middle East conflict, which risk driving underlying inflation above the BOJ's 2% target. The BOJ's decision follows a similar hold by the U.S. United States — Federal Reserve, which also signaled potential future hikes. The BOJ is expected to revise up its growth forecast for fiscal 2026 while possibly cutting its inflation forecast slightly due to subsidies and lower oil costs. Governor Kazuo Ueda's post-meeting briefing will be closely watched for clues on the pace of future rate hikes. A hawkish board member, Hajime Takata, may dissent and propose a hike to 1.25%. The Japanese government intervened in the foreign exchange market on Thursday to support the yen, which had fallen to a 40-year low. The weak yen has increased import costs, hurting households and retailers. Analysts expect the BOJ to raise rates again to 1.25% by year-end, though a dovish administration and the economic impact of a 7.1-magnitude earthquake in Japan — Kumamoto Prefecture may dampen the hawkish mood.