The Bank of Japan kept its policy rate unchanged at 0.5% but delivered a hawkish surprise by sharply upgrading its FY2025 inflation forecast to 2.7%. The move suggests rising confidence in persistent price pressures, though policymakers maintained a cautious stance given lingering growth risks, ING's FX analyst Francesco Pesole notes.

Hawkish BOJ surprise fuels rate hike speculation

"The Bank of Japan held its policy rate steady at 0.5%, but surprised markets by sharply raising its inflation forecast for FY2025 to 2.7%, up from 2.2%. This hawkish tilt signals growing confidence in sustained price pressures, especially from food costs, and hints at a potential rate hike on the horizon."

"However, policymakers also flagged concerns about a possible economic slowdown, suggesting any tightening will remain cautious and data-dependent."