Key facts
- The Bank of Japan is expected to keep its key interest rate at 1%.
- The BOJ will likely maintain its warning that inflation could overshoot its 2% target.
- Sources indicate the BOJ believes the risks of a severe, oil-driven inflation shock have decreased.
- Lingering inflation risks from the Middle East conflict, AI demand, and a weak yen are expected to be highlighted.
- Core consumer inflation stood at 1.6% in June, below the BOJ's target for five consecutive months.
The Bank of Japan is poised to maintain its warning regarding inflation potentially exceeding its 2% target in its upcoming quarterly outlook report, according to three sources familiar with the central bank's thinking. While acknowledging risks such as the Middle East conflict, robust global AI demand, and a weak yen, the BOJ believes the likelihood of a severe, worst-case inflation scenario has diminished since its April assessment. Core consumer inflation stood at 1.6% in June, below the BOJ's target for five consecutive months. Despite this, analysts anticipate inflation will rise above 2% later this year as producer price increases filter through the economy. The central bank is expected to keep interest rates steady at its upcoming meeting and may revise its growth forecast upward due to receding uncertainty from the Middle East conflict.