Bank of Japan Holds Rate at 1% and Flags AI and Middle East Risks in Latest Outlook

The Bank of Japan left its benchmark policy rate unchanged at 1% at its July meeting, opting to keep borrowing costs steady while it assesses a shifting mix of domestic and global risks. In its latest Outlook for Economic Activity and Prices, the central bank indicated it would monitor developments closely, including movements in the yen, the economic effects of artificial intelligence and the fallout from the conflict in the Middle East, which has pushed energy prices higher. The decision to hold followed a period of gradual policy normalisation that had lifted rates to their highest level in decades, and officials have signalled a continued bias toward further tightening should inflation risks intensify. Reports suggest the central bank has been weighing an upward revision to its economic growth projection for the current fiscal year. The steady stance comes against a volatile backdrop of currency pressure and rising government bond yields, leaving the Bank to balance the goal of sustainably reaching its 2% inflation target against the risks of moving too quickly. Markets are watching upcoming data and communications for clues on the timing of the next move.