BOJ set to hold rates in July, may raise growth forecast

The Bank of Japan is expected to keep its benchmark interest rate unchanged at its July 30–31 policy meeting while maintaining forward guidance that signals further hikes ahead, according to sources familiar with the central bank's thinking. Separately, the BOJ is likely to revise up its fiscal 2026 economic growth forecast in its quarterly outlook report, even as it keeps a close watch on the risk of inflation overshooting its 2% target.

Rate Hold Expected After June Hike

The anticipated hold follows the BOJ's decision in June to raise its short-term policy rate to 1% from 0.75%, the highest level since 1995, in a 7-1 vote. Market pricing reflects near-certainty of no change this month, with rate futures implying a roughly 96% probability the BOJ will stand pat. On prediction markets, traders assigned a 93% chance to a hold.kalshi+2

Reuters reported on July 10 that the BOJ is set to leave rates unchanged while maintaining its commitment to continue raising borrowing costs. Deputy Governor Shinichi Uchida indicated after the June meeting that the central bank would keep tightening, focusing on the risk of inflation deviating upward from its target.reuters+2

Growth Forecast Likely Revised Higher

The BOJ may slightly increase its economic growth forecast for fiscal 2026 from the 0.5% expansion projected in April, reflecting strong demand tied to artificial intelligence investment and declining fuel costs following June's preliminary U.S.-Iran peace deal, according to Reuters. At the same time, the central bank may lower its core inflation forecast for the current fiscal year from the 2.8% rise projected in April, given the sharp drop in oil prices.investing+1

However, any downgrade to the price outlook is not expected to alter the BOJ's focus on growing inflationary pressures from the weak yen, steady wage gains, and war-related energy shocks.reuters+1

Next Hike Eyed for Later This Year

A Bloomberg survey conducted after the June meeting found that 90% of economists expect another rate increase by December, with October and December the most popular timing. Former board member Makoto Sakurai told Reuters the next hike could come as early as October, with a terminal rate of around 2% by early 2028. Toshihiro Nagahama, an economic aide to Prime Minister Sanae Takaichi, called for two more hikes at a pace of once every six months.reuters+2

The BOJ's Nikkei 225-moving decisions remain closely watched as Japan navigates its most aggressive tightening cycle in decades, with the yen's persistent weakness adding urgency to the normalization path.