Japan’s 10-year government bond yield slipped below 2.8% on Friday after the Bank of Japan left its policy rate unchanged at 1%, in line with expectations. Borrowing costs therefore remain at their highest level since September 1995, following June’s 25-basis-point rate hike. Policymakers nevertheless flagged upside risks to inflation stemming from demand-driven price pressures linked to the conflict in the Middle East. At the same time, the yen rallied sharply amid suspected intervention by Tokyo, easing some of the pressure on the BOJ to pursue more aggressive monetary tightening to support the currency. Japanese financial markets have come under heavy strain this month from elevated energy prices, growing fiscal concerns, and wide interest-rate differentials, which earlier drove the yen to a 40-year low and pushed the benchmark 10-year JGB yield to a 30-year high.