BOJ Keeps Policy Unchanged, Ups GDP Growth Outlook

Tokyo, July 31 (Jiji Press)–The Bank of Japan on Friday decided to keep its monetary policy unchanged while raising its gross domestic product growth outlook for fiscal 2026. At its two-day meeting through the day, the BOJ’s Policy Board decided by a vote of eight to one to maintain the policy of guiding the unsecured overnight call rate, Japan’s benchmark short-term policy rate, to around 1 pct. The board, at its meeting last month, decided to raise the call rate target by 0.25 point to around 1.0 pct, a level unseen in 31 years for a BOJ policy rate. In its new quarterly Outlook for Economic Activity and Prices report, adopted at the latest Policy Board meeting, the Japanese central bank raised its growth forecast for the country’s real gross domestic product for fiscal 2026 to 0.6 pct from 0.5 pct shown in the previous report released in late April. The upward revision was supported by easing concerns about procurement difficulties for crude oil stemming from instability in the Middle East, as well as strong demand for artificial intelligence-related products, including semiconductors. The fiscal 2027 growth projection was also raised to 0.8 pct from 0.7 pct, while the fiscal 2028 estimate was left intact at 0.8 pct. The BOJ cut the growth estimate for Japan’s core consumer price index in fiscal 2026 to 2.5 pct from 2.8 pct, in light of government fuel subsidies and other cost-of-living relief measures. The CPI growth forecast was raised to 2.4 pct from 2.3 pct for fiscal 2027, while the projection for fiscal 2028 remained unchanged at 2.0 pct. “Japan’s economy has recovered moderately, although some weakness has been seen in part, partly due to the impact of the situation in the Middle East,” the BOJ said in the report. On the outlook for prices in Japan, the BOJ said that, due to more aggressive wage and price hikes by companies and the weaker yen, there is a risk that the underlying rate of inflation could “deviate upward” to a level above its 2 pct price stability target, expressing concern that such developments could have adverse effects on the economy. Also in the report, the BOJ said strong capital spending related to AI could further lift the global economy, while warning that continued expansion in AI-related demand beyond expectations could increase upward pressure on prices. END [Copyright The Jiji Press, Ltd.]