The Bank of Japan announced its decision to leave the policy rate unchanged at its July Monetary Policy Meeting. The economy is expected to grow moderately, supported by expanding AI-related demand and government measures, while prices are expected to approach a level consistent with 2% from the second half of fiscal 2026 through fiscal 2027.
The summary of the Bank of Japan’s July Monetary Policy Meeting indicated that it was appropriate to leave the policy rate unchanged this time in order to carefully assess the effects of the rate hike at the previous meeting. The effects of the rate hike are expected to take approximately 1 to 1.5 years to emerge in prices and the domestic economy.
While expanding global demand related to AI is expected to support economic conditions, developments in the Middle East are viewed as a factor weighing on economic activity. A weaker yen is expected to have both positive and negative effects on the economy, while the impact of higher oil prices is being mitigated by expanding AI demand, alleviating concerns about an economic slowdown.
Regarding the inflation outlook, if the gradual mechanism of rising wages and prices is maintained, inflation could approach the 2% price stability target from the second half of fiscal 2026 through fiscal 2027. The importance of assessing whether this trend has become firmly established was emphasized.
Regarding the impact on the domestic economy, although uncertainty surrounding developments in the Middle East remains, oil prices have declined from their April peak, and government policies are expected to support growth. In addition, capital investment is expected to remain firm, supported by demand for AI among domestic companies and investment in power infrastructure.