Bank of Japan Held Rates Steady, Tokyo Region Inflation Accelerated In July

Akira Ito
31 Jul, 2026
Tokyo

Stocks in Japan staged a sharp rally on Friday, and investors reviewed the rate decisions and inflation update. 

The Nikkei 225 Stock Average soared as much as 5%, and the broader TOPIX increased nearly 2%, and the Japanese yen strengthened more than 3% to 160.63 against the U.S. dollar. 

The Bank of Japan left its short-term policy rate at 1% at the end of its policy meeting on Friday, following its previous 25 basis point hike in June.  

In the 8-1 rate decision, policymakers warned for the first time that underlying inflation could exceed the 2% target due to higher import costs of energy and rising wages. 

In its quarterly outlook, the BoJ lifted its 2026 real GDP growth projection to 0.6% from the previous estimate of 0.5% amid strong exports and resilient domestic demand. 

In addition, the central bank lowered its fiscal year 2026 inflation estimate to 2.5% from 2.8%, reflecting continued support from the government for energy bills for residents. 

The rate decision accompanied a suspected market intervention to bolster the currency, which has been hovering at a four-decade low for weeks. 

On the economic front, overall inflation in the Tokyo area accelerated to 2.0% in July from 1.7% in June, marking the highest level in seven months. 

Core consumer prices, which excludes volatile food prices, accelerated to an annual 1.9% in July from a 1.6% rise in the previous month, signaling broadening price pressures stemming from the ongoing tensions in the Middle East.  

Meanwhile, core-core inflation, which excludes food and energy prices, advanced to 2.0% in the month from 1.9% in June, according to the data released by the Statistics Bureau of Japan. 

 

Japan Indexes and Stocks 

The Nikkei 225 Stock Average increased 4.1% to 64,422.77, and the broader TOPIX advanced 1.5% to 4,011.79. 

AI- and semiconductor-linked stocks soared following a sharp rebound in tech stocks in overnight trading in New York. 

Microsoft and Amazon reported better-than-expected quarterly results and reiterated their commitment to continue their investments in artificial intelligence infrastructure. 

Tokyo Electron Media increased 5.7% to ¥55,190.0, Advantest Corp. rose 15% to ¥32,220.0, and soared 12.7% to ¥37,980.0.