The Bank of Japan kept its key short-term interest rate unchanged at 1.0% during its July 2026 meeting, leaving borrowing costs at their highest since September 1995. The decision passed by an 8-to-1 vote, with board member Hajime Takata dissenting in favor of a hike to 1.25%. In its quarterly outlook, the central bank lowered the fiscal 2026 inflation forecast to 2.5% due to government subsidies but raised GDP growth to 0.6%, while for fiscal 2027 it lifted the inflation estimate to 2.4% and trimmed GDP growth to 0.8%. Policymakers warned that underlying price growth could overshoot the 2% target and highlighted the need to monitor foreign exchange volatility and AI-driven international demand. The Nikkei 225 Index jumped 5% to around 65,000, and the yen surged as much as 3.3% to about 158 per dollar before pulling back to around 160.5.