File photo: Bank of Japan Head Office, Tokyo, Japan

TOKYO, July 31 — The Bank of Japan left its short-term policy rate unchanged at 1.0% on Friday, maintaining a cautious stance while signaling that further interest rate increases remain possible if underlying inflation continues to strengthen.

The decision, approved by an 8-1 vote, followed June’s rate increase and came as Japanese authorities stepped into the foreign exchange market to support the yen after the currency weakened to levels not seen in nearly four decades. Board member Hajime Takata dissented, calling for an immediate 25-basis-point rate hike.

In its policy statement, the BOJ acknowledged that underlying inflation could exceed its 2% target, reinforcing expectations that borrowing costs may continue to rise if price pressures broaden across the economy.

The yen initially strengthened following suspected government intervention before giving back part of its gains after the BOJ kept rates unchanged. Investors are now focused on Governor Kazuo Ueda’s comments for further guidance on the timing of the central bank’s next policy move.

Japan’s latest intervention highlights policymakers’ growing concern over prolonged yen weakness, which has driven up import costs and added to inflationary pressures, even as the central bank proceeds cautiously with monetary policy normalization.

Source: Reuters reporting; rewritten and edited for clarity.