The Bank of Japan kept its policy rate steady on Friday, as it warned that core inflation in the country could exceed its 2% target.

Japan’s central bank’s move to hold rates at 1% was an 8-1 decision, with board member Hajime Takata proposing a hike to 1.25%.

In its outlook, the BOJ said that core inflation was likely to accelerate to a level “clearly above” 2% from the second half of its 2026 fiscal year, which runs from September to March.

It cited wage increases being passed along into selling prices, the rise in crude oil prices and the recent depreciation of the yen. Inflation should then come down toward 2% as crude oil prices decline, it said.

The decision comes as Tokyo reportedly conducted an intervention on Thursday night, in conjunction with U.S. authorities executing a “rate check,” a move usually seen as a precursor to intervention.

The yen was trading around the 163 level against the dollar, before rallying strongly to as high as 157.96.

The move also comes as speculation continues to swirl around whether the Bank of Japan will boost rates at a faster pace due to surging bond yields and a weak yen.

BOJ officials are open to moving faster than the current market view of one hike every six months, Bloomberg reported before the decision, citing people familiar with the matter.

The benchmark 10-year Japanese government bond yield has eased slightly from multi-decade highs, but still remains at about 2.8%.

Analysts have drawn attention to BOJ Governor Kazuo Ueda’s communications after the policy decision, saying that Ueda’s statements will be where markets take their cue from.

“The more important question is whether Governor Ueda and the BOJ signal an acceleration in the pace of future hikes. This will be the focal point of the meeting, and Ueda’s press conference will be where markets look for answers,” according to Wataru Aso, product specialist at RBC BlueBay Asset Management, in a note.

In a June 25 speech, BOJ Board Member Naoki Tamura said that in his personal view, underlying inflation has generally reached the BOJ’s 2% target.

“Moreover, I believe there is a high risk that price developments will deviate upward from the Bank’s baseline scenario,” Tamura, who is seen as hawkish, added.

He noted that while the core inflation figure for Japan is under 2%, this has been held down by government subsidies for energy and school fees. With those removed, core inflation has been above 2%.

Japan’s core inflation for July came in at 1.6%, and has been below 2% for most of 2026.

This is breaking news, please check back for updates.