BoJ: Cautious by default — gear shift under pressure

Research evidence excerpt

BoJ: Cautious by default — gear shift under pressure

J P M O R G A N Japan Economic Research

31 July 2026

BoJ: Cautious by default — gear

shift under pressure

The BoJ left its policy rate unchanged, as widely expected. There was one Economic and Policy Research

dissenting vote, with Takata calling for a rate hike. While the revisions to the Ayako Fujita

economic and inflation projections in the Outlook Report were largely technical, (81-3) 6736-1172

the policy guidance incorporated more hawkish language, suggesting that ayako.fujita@jpmorgan.com

heightened vigilance toward upside inflation risks could lead to an acceleration in JPMorgan Securities Japan Co., Ltd.

the pace of rate hikes. That said, Governor Ueda did not convey a strong sense of

urgency about raising rates at the press conference. We maintain our long-held

view that the next hike will come in October—somewhat earlier than a strictly

semi-annual pace. However, in light of the BoJ’s increased sensitivity to the

exchange rate signaled this time, we acknowledge the risk of the timing being

brought forward to September should USDJPY resume a stronger upward trend.

The Outlook Report revisions to the economic and inflation forecasts were

mechanical in nature: the near-term growth forecast was nudged slightly higher,

while the FY26 inflation forecast was lowered to reflect the reintroduction of

electricity and gas subsidies. By contrast, the monetary policy guidance was

adjusted in a more hawkish direction. Until June, the only factor explicitly cited as

something to watch in judging the timing and pace of adjustments to the degree of

monetary accommodation was developments in the Middle East—an item that was

more likely to argue for delaying hikes. This time, however, the BoJ added the