Bank of Japan holds rate at 1.0% as 10-year JGB yield nears 3%

The Bank of Japan left its short-term policy rate unchanged at 1.0% at its July 2026 meeting, following June’s 25 basis-point increase to the highest level since September 1995. The decision passed 8-1, with board member Hajime Takata dissenting in favor of another 25 basis-point hike. The BOJ warned that underlying inflation could exceed its 2% target and said it would continue raising borrowing costs in line with economic and price trends. The central bank also changed its assessment of growth risks, saying they were balanced rather than tilted to the downside. That shift, together with the inflation warning, prompted investors to increase bets on another rate hike by October as attention turned to Governor Kazuo Ueda’s remarks later in the day. Japan’s benchmark 10-year government bond yield eased slightly from multi-decade highs but remained around 2.8%, and the yen stayed under pressure near 163 per dollar after briefly strengthening to 157.96. Policymakers’ concern reflects the risk that yen weakness raises import costs and adds to inflation, even as Japan’s July core inflation reading came in at 1.6%. Recent remarks from BOJ Board Member Naoki Tamura reinforced the hawkish tone. In a June 25 speech, Tamura said his personal view was that underlying inflation had generally reached the BOJ’s 2% target and warned of a high risk that prices could overshoot the bank’s baseline scenario. He said headline core inflation had been held below 2% by government subsidies for energy and school fees, while underlying price pressures were stronger once those effects were stripped out.