Bank of Japan Holds Rate at 1% After Intervening to Slow the Yen's Decline

The Bank of Japan left its benchmark interest rate at 1 percent, a decision widely expected after the central bank raised the rate from 0.75 percent in June. The vote was 8 to 1, Bloomberg reported, with board member Hajime Takata dissenting in favor of a move to 1.25 percent.

The decision came a day after the Japanese authorities intervened directly in the currency market to support the yen, which had fallen sharply against the dollar. The intervention pushed the dollar down from above 163 yen to below 158, its largest single-day yen gain since 2023 according to Bloomberg, but the effect faded quickly and the pair rose back above 160 by Friday morning. Bank of Japan data released Friday suggested the intervention totaled about 8.45 trillion yen, roughly 53 billion dollars, which Bloomberg reported would be the largest single-day currency intervention Japan has ever conducted.

In its accompanying outlook, the bank raised its growth forecast for the 2026 fiscal year to about 0.8 percent and said core inflation was likely to accelerate to a level clearly above 2 percent in the second half of the year. Economists surveyed by Bloomberg were divided on the timing of the next increase, with 40 percent expecting October and half expecting December.

The tension is clear. With the policy rate at 1 percent and inflation projected above 2 percent, the real return on holding yen remains negative, and each round of currency intervention addresses the falling yen without correcting the interest-rate policy that causes it. Japan is spending reserves to defend a currency that its own rate policy keeps undervaluing.