JP: BoJ interest rate decision
Date: Thursday, 31 July at no set time
At its last monetary policy meeting in mid-June, the BoJ kept its key policy rate on hold at 0.50% for a third consecutive meeting. The decision to hold rates was widely expected, as was its move to cut growth and inflation forecasts, reflecting uncertainties surrounding US tariffs and their threat to Japan’s export-driven economy.
Additionally, the BoJ elected to decelerate the pace of its balance sheet drawdown in 2026, prompted by a period of unusual volatility in the Japanese bond market, which saw yields on Japanese government bonds soar to record highs.
Despite news this week that the US and Japan reached a trade agreement reducing uncertainty, next week’s BoJ meeting is being overshadowed by political uncertainty surrounding the future of Prime Minister Ishiba, following the Liberal Democratic Party election loss over the weekend.
Probability markets, such as Polymarket, now assign a 77% chance that Ishiba will be replaced as leader of the Liberal Democratic Party, with Sanae Takaichi and Shinjiro Koizumi viewed as the leading candidates.
While the identity of the next leader is important, the recent upper house election loss significantly constrains the new leader’s autonomy.
The need to form coalitions with smaller parties – like the Democratic Party for the People, which saw support surge in the upper house election due to its push for consumption tax cuts, or the ‘Japanese First’ anti-immigration party Sanseito, which won 14 seats to become the chamber’s third-largest party – will shape policy and market outcomes.
Given this political uncertainty, combined with recent softer inflation data, the BoJ is likely to keep rates on hold next week at 0.50%, before possibly raising rates again in December.
BoJ policy rate chart