A shift in government policy on measures to address high prices and yen depreciation has become the focus of the markets, with attention centered on the BOJ's rate-hike path and the direction of the yield curve. Against the backdrop of the revisions to the Cabinet's policy in July and comments from the fiscal authorities, the pace of rate increases and how policies to curb yen depreciation will develop are key issues going forward.
Amid developments concerning the Takaichi administration's monetary and fiscal policy stance, yen depreciation and bond price declines occurred in early July 2026. Wording was subsequently revised in the Basic Policy on Economic and Fiscal Management and Reform, adopted by the Cabinet on 21 July. The move appeared to reflect the government's consideration for the markets.
Views have emerged that the risk of persistently high inflation in Japan is increasing due to developments in crude oil prices and the impact of the situation in the Middle East. The discussion has focused on the potential for stronger downward pressure on the yen and the implications for the BOJ's rate-hike stance. While higher oil prices could feed through to domestic prices and interest rates, the outlook for the economy and interest rates remains uncertain.
If foreign-exchange intervention is relaunched, the market focus will be on how the Japanese and US governments treat the policy of using BOJ rate hikes as a measure against yen depreciation. The decision on whether to intervene could affect the steepening of yen interest rates and the shape of the yield curve, and attention is focused on policy operations at the next meeting and from the September meeting onward.
Amid developments surrounding comments on a review of GPIF's basic portfolio, the finance minister emphasized promoting JGB holdings, raising the possibility that policies resembling verbal intervention to restrain interest rate increases will continue. No official procedures or implementation schedule have been determined at this stage, but the issue is attracting attention because it could affect interest rate movements.