The Bank of Japan may suspend action this week to assess the impact of previously raising policy interest rates to their highest level in 30 years. The market will keep a close eye on the bank's latest economic and inflation forecasts to find clues about the timing and pace of future action. Outsiders generally expect that the Bank of Japan will keep the 1% policy interest rate unchanged at the end of the two-day meeting on Friday. At its last meeting in June, the bank raised interest rates to a 31-year high on the grounds that rising oil prices could lead to potential inflation exceeding the target of 2%. Despite ongoing concerns about inflation, the Bank of Japan remains determined to further tighten policy. The market has included the expectation of at least one more rate hike before the end of the year into the pricing. Although the uncertainty of the situation in the Middle East has caused crude oil prices to rise again, Bank of Japan policymakers believe that the risk of a sharp decline in the Japanese economy is low. They expect that the Japanese government will ensure an adequate supply of energy through transportation routes that bypass the Strait of Hormuz. Furthermore, the weak yen is still one of the main factors affecting the price trend in Japan. This not only increases the burden caused by already high energy prices, but may also further push up import costs. Barclays economists said that if the yen falls sharply and the exchange rate intervention of the Japanese authorities is unable to contain the decline, the Bank of Japan may be forced to raise interest rates as early as September.

The Bank of Japan may suspend action this week to assess the impact of previously raising policy interest rates to their highest level in 30 years. The market will keep a close eye on the bank's latest economic and inflation forecasts to find clues about the timing and pace of future action. Outsiders generally expect that the Bank of Japan will keep the 1% policy interest rate unchanged at the end of the two-day meeting on Friday. At its last meeting in June, the bank raised interest rates to a 31-year high on the grounds that rising oil prices could lead to potential inflation exceeding the target of 2%. Despite ongoing concerns about inflation, the Bank of Japan remains determined to further tighten policy. The market has included the expectation of at least one more rate hike before the end of the year into the pricing. Although the uncertainty of the situation in the Middle East has caused crude oil prices to rise again, Bank of Japan policymakers believe that the risk of a sharp decline in the Japanese economy is low. They expect that the Japanese government will ensure an adequate supply of energy through transportation routes that bypass the Strait of Hormuz. Furthermore, the weak yen is still one of the main factors affecting the price trend in Japan. This not only increases the burden caused by already high energy prices, but may also further push up import costs. Barclays economists said that if the yen falls sharply and the exchange rate intervention of the Japanese authorities is unable to contain the decline, the Bank of Japan may be forced to raise interest rates as early as September.