Title: BoJ Holds Policy Steady as Yen Weakens: Market Awaits Signals Ahead of Potential Hikes
Original Author: Mitrade News Team
Article Source: Mitrade (https://www.mitrade.com/insights/news/live-news/article-1-999039-20250731)
On July 31, 2025, the Bank of Japan (BoJ) chose to maintain its current monetary policy settings despite a growing weakness in the Japanese yen and increased speculation in global markets about inflation and interest rate direction. As expected by most analysts, the central bank left short-term interest rates unchanged and declined to make any adjustments to its asset purchase program. However, policymakers at the BoJ signaled that they are carefully monitoring currency movements and inflationary pressures and remain open to taking necessary action in the future.
The Japanese yen has been weakening significantly in recent months, raising concerns about its impact on import costs and the purchasing power of households. At the same time, domestic inflation has remained relatively subdued, complicating the BoJ’s policy response as it attempts to balance economic stability against rising external headwinds.
Below is a comprehensive summary of the Bank of Japan’s latest decision and the broader economic and financial context surrounding it.
BoJ’s Policy Decision Highlights
– The Bank of Japan kept the short-term interest rate at -0.1 percent, remaining committed to its long-standing policy of ultra-low interest rates.
– The central bank continued its practice of purchasing government bonds to maintain its yield curve control policy, aiming to keep the 10-year Japanese government bond (JGB) yield around 0.0 percent.
– No changes were made to the broader asset purchase programs, which include ETFs and real estate investment trusts.
– The BoJ’s decision to hold policy steady aligns with market expectations, although some economists anticipated more hawkish forward guidance.
Reaction of Financial Markets
– Following the BoJ’s announcement, the Japanese yen weakened further against the US dollar, crossing the 150 mark and deepening its slump that started earlier in the year.
– Japanese equity markets responded positively, with the Nikkei 225 rising modestly as low interest rates were seen as supportive of corporate borrowing and investment.
– Bond yields remained flat as traders assessed the BoJ’s tone and awaited signals of possible tightening in future policy meetings.
Yen Decline and Its Implications
– The Japanese yen has depreciated significantly against the USD, euro, and other major currencies throughout 2025, driven by high interest rate differentials, especially as the US Federal Reserve maintains its restrictive stance.
– A weaker yen makes Japanese exports cheaper in foreign markets, potentially benefiting the country’s export-oriented economy.
– On the other hand, it increases the cost of imports, particularly energy and raw materials, which has begun to filter into domestic inflation data.
– Japanese households are feeling the pressure as the costs of daily goods rise, putting strain on consumer purchasing power and domestic consumption.
BoJ’s Outlook on Inflation
– According to the BoJ’s latest outlook report, inflation is expected to stay within the 2 to 2.5 percent range over the next 12 months, largely due to imported price pressures.
– Core inflation, which excludes volatile food and energy items, remains below the target and shows little sign of accelerating in a sustainable manner.
– The BoJ attributed much of the current inflation to temporary factors such as rising global commodity prices and supply chain disruptions.
– Policymakers reiterated the view that inflationary expectations remain well-anchored and that Japan has not yet achieved consistent demand-driven pricing growth.
Governor’s Press Conference Key Takeaways
During the post-decision press conference, BoJ Governor Haruhiko Kuroda struck a cautious tone. While reaffirming the need for continued policy support, he emphasized the central bank’s readiness to act should the inflation outlook change substantially or should currency destabilization impact broader economic fundamentals.
Key excerpts from his statements:
– “The yen’s recent decline has had
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