Japan yen hits 40‑year low as inflation rises, BOJ to hold rates

The Japanese yen slipped to around ¥163‑¥164 per dollar, its weakest level since the mid‑1980s, as the Middle‑East conflict lifted oil prices and heightened import‑cost pressures. The depreciation has contributed to a surge in imported‑goods prices, pushing Japan’s core consumer‑price index (CPI) up 1.6% year‑on‑year in June, with headline CPI reaching 1.7%.

The Bank of Japan, which raised its policy rate to 1% in June – the highest in 31 years – is expected to keep the rate unchanged at its July 30‑31 meeting and to retain its warning that inflation could overshoot the 2% target. Sources say the bank judges that the risk of a sharp inflation spike has not grown since April, even as it notes lingering price pressures from the weak yen, AI‑driven demand and the ongoing geopolitical tension. Analysts anticipate a possible further hike to 1.25% between October and December if inflation stays on‑track.

The government also warned that firms are passing cost increases to consumers faster than during the 2022 Ukraine‑related shock, underscoring concerns that price pressures may become entrenched.