Yen dilemma: Cooling inflation and weak wages leave the Bank of Japan lacking confidence to raise interest rates

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智通财经2026/07/29 13:26

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The Head of Asia Rates and FX Strategy at JPMorgan Private Bank, citing market consensus, indicated that the Bank of Japan is highly likely to keep its current interest rates unchanged at the end of its two-day policy meeting this Friday.
The central bank raised its policy rate to 1% in June, but the market is only pricing in one more full rate hike before the end of the year, reflecting a very restrained investor expectation for further tightening.
Slowing inflation and weak wage growth are the main reasons supporting the market’s rather dovish pricing. Although there have been some energy price shocks, large-scale government subsidies have effectively kept Q2 inflation indicators in check.
Real wage growth has continued to hover near zero, indicating there has been no substantial improvement in consumer purchasing power, making it difficult for consumption to generate endogenous momentum for sustained price increases.
The Bank of Japan will face a dilemma in weighing the pace of subsequent rate hikes: tightening too early could undermine a fragile economic recovery, while holding rates steady for too long may increase downward pressure on the yen. Friday’s meeting will provide a key signal for the market’s expectations on the policy path for the rest of the year.

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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Yen dilemma: Cooling inflation and weak wages leave the Bank of Japan lacking confidence to raise interest rates

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