The Bank of Japan held interest rates at 1 per cent on Friday, a widely expected decision with a single dissent from Hajime Takata, who voted for a rise to 1.25 per cent. The lone hawkish vote suggests pressure for further tightening is not yet widespread, reinforcing expectations of a hold at September's meeting unless energy inflation surges.

New quarterly forecasts revised near-term GDP growth upward and noted risks to economic activity are "generally balanced," up from April's "downside" assessment. While near-term core CPI projections dipped slightly due to lower energy prices and government subsidies, the BoJ still expects underlying inflation to exceed 2 per cent in the second half of 2026, sustained by wage-price dynamics amid persistent labour shortages.

Governor Ueda struck a hawkish tone, warning that delaying policy action amid upside inflation risks could harm the economy. The central bank highlighted inflationary risks including Middle East escalation, AI-related demand, and yen developments. Overnight, the Ministry of Finance intervened to briefly lift the yen to ¥158 against the dollar from ¥163.

Analysts expect one more tightening this year to 1.25 per cent, likely at the October meeting, unless a Strait of Hormuz closure triggers a faster pace pushing rates to 1.5 per cent.