Japan BOJ Policy On Hold at July Meeting

Economics Research 31 July 2026 | 1:00PM JST

Japan: BOJ: Policy On Hold at July Meeting; Continues to Judge There is a Risk of Underlying Inflation Exceeding 2%

Key Points Akira Otani | Goldman Sachs Japan Co., Ltd. n The Bank of Japan (BOJ) held its Monetary Policy Meeting (MPM) on July 30-31, and, as was widely expected, decided to maintain its policy interest rate at 1% (by a majority vote). Board member Mr. Hajime Takata voted against, proposing a rate hike to 1.25%. n In the July Outlook Report, the BOJ revised up its growth forecasts for FY2026 and FY2027 slightly, driven by factors such as the spillover of growing global AI demand, while it revised down its price forecast for FY2026 due to factors such as the government’s measures to reduce burden of higher energy prices. However, regarding the timing for underlying inflation to reach 2%, it maintained its previous judgment of “between the second half of fiscal 2026 and fiscal 2027”. n Regarding the risk balance, the BOJ assessed risks to the economic growth outlook as balanced and risks to the price outlook as skewed to the upside, continuing to evaluate that there is “a risk of underlying CPI inflation deviating upward to a level above the price stability target of 2 percent.” n As for the future conduct of monetary policy, the BOJ indicated it will continue its policy of raising the policy interest rate. n At Governor Kazuo Ueda’s press conference from 15:30 JST, our focus will be on his comments regarding: (1) his assessment of the risk of underlying inflation exceeding 2%; (2) vigilance against yen depreciation; and (3) his assessment of the risk of falling behind the curve.

n The BOJ held its MPM on July 30-31, and, as was widely expected, decided to maintain its policy rate guidance on the overnight call rate (TONA) at 1% (by a majority vote). Board member Mr. Hajime Takata voted against, proposing a rate hike to 1.25%. n The July Outlook Report can be summarized as follows. Regarding the economic outlook, the BOJ revised up its growth forecasts for FY2026 and FY2027 slightly, due to factors such as the spillover of growing global AI demand. Regarding the price outlook, the BOJ revised down its core CPI for FY2026 somewhat due to factors such as the government’s measures to reduce burden of higher energy prices. Downward revision on the new core CPI forecasts were limited. Regarding

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the timing of underlying inflation reaching 2%, it maintained its previous judgment of “between the second half of fiscal 2026 and fiscal 2027”. n Regarding the risk balance, the BOJ assessed risks to the economic growth outlook as balanced and risks to the price outlook as skewed to the upside, maintaining its evaluation that there is “a risk of underlying CPI inflation deviating upward to a level above the price stability target of 2 percent.” n Regarding the BOJ’s forward guidance on monetary policy, it maintained its stance to continue raising the policy interest rate, stating as in the statement of the June meeting that “given that underlying CPI inflation is approaching 2 percent and financial conditions have been accommodative, the Bank will continue to raise the policy interest rate and adjust the degree of monetary accommodation, in response to developments in economic activity and prices as well as financial conditions.” With this, the BOJ added a phrase “ the perspective of stabilizing underlying CPI inflation at a level around 2 percent becomes important”. n At Governor Ueda’s press conference from 15:30 JST, our focus will be on the following three points, in terms of gaining any hints regarding future rate hikes, such as the pace of rate hikes and the terminal rate. First is his assessment of the risk of underlying inflation exceeding 2%. The July Outlook Report presented the same assessment as the statement of the June meeting, but we will be looking to confirm Governor Ueda’s view on how that risk has changed compared to the time of the June meeting, as it is closely related to…