The Bank of Japan is expected to hold policy this week to assess the impact of
its June raising move rates to a 31-year high. Markets will watch updated
economic and inflation forecasts for clues on timing and pace of further
tightening. The BOJ is forecast to leave the policy rate at 1% when it ends a
two-day meeting on Friday. In June the bank cited oil-driven upside risks to
inflation relative to the 2% target; officials say they remain committed to
further tightening and markets price at least one more hike by year‑end. Despite
renewed oil gains from Middle East tensions, policymakers judge the risk of a
sharp economic downturn in Japan as low and expect the government to secure
energy supplies via routes bypassing the Strait of Hormuz. A weak yen remains a
key upward pressure on domestic prices and import costs. Barclays warns that a
sharp yen fall that resists official FX intervention could force the BOJ to
tighten as early as September.
