The Bank of Japan maintained its benchmark interest rate at 0.5% by unanimous vote this July while upgrading its inflation outlook for fiscal 2025 amid cautious optimism on Japan’s recent trade agreement with the United States.
Key Takeaways from the July 2025 BOJ Announcement:
Interest Rate Decision:
- BOJ unanimously kept the policy rate unchanged at 0.5%—the highest level since 2008
- Decision supports the central bank’s measured approach to further monetary normalization
- Governor Kazuo Ueda emphasized the bank will continue raising rates “in accordance to improvements in economic and price developments”
Quarterly Outlook Report:
- Inflation forecast raised: CPI (all items less fresh food) projected at 2.5-3.0% for fiscal 2025, up from the previous 2.0-2.3% range
- GDP projections unchanged: Real GDP growth forecast maintained at +0.6% median for fiscal 2025
- Medium-term outlook: Underlying inflation expected to reach levels “generally consistent with the price stability target” in the second half of the projection period
The Japanese central bank’s quarterly Outlook Report highlighted that the economy is recovering moderately despite some weakness in exports and industrial production, as corporate profits remain on an improving trend with business sentiment at favorable levels.
In addition, policymakers assessed that private consumption is showing resilience against rising prices, supported by improving employment conditions. After all, the labor market is expected to remain tight, with nominal wage growth likely to stay elevated.
Link to official BOJ Quarterly Outlook Report (July 2025)
However, BOJ officials also identified several risks to their outlook, including potential downside threats to growth from evolving global trade policies resulting to a slowdown in other trade partners. They also predicted that the recent rise in food prices could wane and that underlying inflation could remain sluggish.
During the press conference, BOJ Governor Ueda reiterated plans to continue hiking interest rates as long as the “economy and prices move in line with our forecast.” Still, he struck a balanced tone when it came to trade policy and inflation.
Ueda noted that uncertainty has “receded” due to Japan’s trade agreement with the U.S. but that “the impact of significantly high U.S. tariffs on the economy is still unclear.” Furthermore, he emphasized the importance of maintaining the “cycle of rising wages and inflation” and explained that tightening decisions will be based on how likely underlying inflation will reach their 2% target.
Link to BOJ Press Conference (July 2025)
Market Reactions
Japanese Yen vs. Major Currencies: 5-min
Overlay of JPY vs. Major Currencies Chart by TradingView
The yen, which had previously been running higher leading up to the BOJ decision, initially strengthened following the announcement and upgraded inflation forecasts. However, the currency returned some of its gains leading up to Governor Ueda’s press conference.
Although the central bank head delivered a balanced tone during the presser, JPY weakened across the board after the event as traders likely focused on the downside risks to growth and inflation outlook. The yen chalked up steep declines versus AUD (-0.38%) and NZD (-0.31%) while keeping losses limited versus CAD (-0.11%) and GBP (-0.16%) a few hours after Ueda’s remarks.
加载失败()