BoJ Holds Rate at 0.5%, Raises Inflation Forecasts

The Bank of Japan held steady its benchmark short-term rate at 0.5% in the July meeting, maintaining borrowing costs at their highest level since 2008, in line with market expectations. The decision was unanimous, reflecting the central bank’s cautious approach to policy normalization. It came just hours after the U.S. Federal Reserve left rates unchanged for the fifth consecutive meeting, defying pressure from President Trump to cut rates. In its quarterly outlook, the BoJ raised its core inflation forecast for FY 2025 to 2.7%, up from April forecasts of 2.2%, expecting it to ease to around 1.8% in FY 2026 before edging up to 2.0% in FY 2027. The GDP growth forecast for FY 2025 was also revised slightly higher to 0.6% from the previous projections of 0.5%, following a trade agreement with Washington that helped reduce uncertainty around Japan’s fragile recovery. Meanwhile, the growth outlook for FY 2026 remained unchanged at 0.7%.