HG MARKETS: 

USD/JPY recovered to around 160.60 on Friday after a sharp decline in the previous session. The rebound came as investors assessed the possibility that the Bank of Japan may have intervened to support the yen. However, there has been no official confirmation from Japanese authorities, so market participants remain cautious while watching for any further signals.

The Bank of Japan also held its policy meeting and decided to keep interest rates unchanged at 1.0%. This was in line with market expectations and came after the central bank raised rates by 25 basis points in June. Borrowing costs in Japan remain at their highest level since September 1995, showing that the BOJ is still maintaining a relatively firm policy stance compared to previous years.

The decision to hold rates steady was approved by an eight-to-one vote. Board member Hajime Takata dissented and called for another rate hike, arguing that inflation risks remain high. He pointed to stronger demand pressures and the potential impact of the Middle East conflict, which could push prices higher again if energy markets remain unstable.

In its quarterly outlook, the BOJ lowered its core inflation forecast for fiscal year 2026 to 2.5%, down from the previous estimate of 2.8%. The central bank said this revision was mainly due to the fading impact of earlier high oil prices. At the same time, the BOJ slightly raised its GDP growth forecast for fiscal year 2026 to 0.6% from 0.5%, supported by strong domestic demand and government efforts to reduce household energy costs during the summer.

For fiscal year 2027, the BOJ adjusted its outlook in a mixed way. It raised its core inflation forecast to 2.4% from 2.3%, suggesting that price pressures may remain sticky in the longer term. However, it lowered its GDP growth forecast to 0.8% from 0.9%, indicating that economic momentum may soften slightly. Overall, the BOJ’s message was cautious: inflation remains a concern, but the central bank is not rushing into another immediate rate hike.