BOJ Likely to Maintain Inflation Warning but Signal No Major Risk Build-Up
The Bank of Japan (BoJ) is expected to maintain its warning about inflation overshooting the 2% target in an upcoming quarterly outlook report, though it will signal that risks have not significantly increased since three months ago. The central bank remains cautious due to lingering factors such as the Middle East conflict, strong global AI demand, and a weak yen driving up import costs. However, sources indicate that the likelihood of severe supply disruptions causing rapid inflation has diminished compared to earlier this year. The BoJ's tone is shifting from its April report, which warned of a potential 'big overshoot in inflation' due to uncertainty around the Middle East conflict. In June, it raised interest rates for the first time since 2007 and pushed them to a 31-year high of 1%. Analysts now expect another rate hike between October and December if core consumer prices align with projections through autumn. At its upcoming meeting on July 31, the BoJ is likely to keep rates steady at 1% but revise up growth forecasts as uncertainty over the Middle East conflict recedes. Core inflation remains below target for a fifth consecutive month in June at 1.6%, though analysts anticipate it will rise above 2% later this year due to rising producer prices.
Topics: Bank of Japan (BOJ) Global AI Demand Inflation Interest Rates Middle East Conflict