A more sanguine BOJ tone, even alongside a repeated 2% overshoot warning, points to continuity rather than a hawkish surprise at next week's meeting, with rates expected to hold at 1%. The shift in focus toward how much of the cost increase firms pass on to households, rather than the immediate oil shock itself, suggests the central bank sees the acute geopolitical risk as somewhat contained for now, even as analysts still expect a hike to 1.25% between October and December. For the yen, already under pressure and near 40 year lows, any signal on financial conditions and currency depreciation in the report is likely to matter more to markets than the precise inflation target timeframe, which some analysts say is losing relevance as inflation nears target regardless.---Earlier:Japan finmin Katayama signals readiness for decisive forex action on yenJapan warns of faster cost pass-through inflation while BOJ expected to hold rates next weekJapan core CPI rises 1.6% in June, matching forecast, USD/JPY little changedUS presses BOJ on rate hikes as yen hits 40-year low ... intervention threat looms---The BOJ looks set to keep sounding the inflation alarm next week, just with noticeably less urgency than three months ago.Summary:The BOJ is expected to repeat its warning on the risk of inflation overshooting the 2% target at next week's policy meeting, but signal the risk has not grown significantly since AprilThe tone marks a shift from April's report, which warned of a big overshoot given uncertainty from the Middle East warThe BOJ's focus is shifting toward how much firms are passing rising costs on to households, rather than the direct oil shock itselfRates are expected to stay on hold at 1% at the July 30-31 meeting, with the BOJ likely to revise up its growth forecastCore inflation hit 1.6% in June, below the 2% target for a fifth straight month, though analysts expect it to climb back above 2% later this yearReuters polled analysts expect the BOJ's next rate hike, to 1.25%, sometime between October and DecemberBoard members remain split between hawks pushing for faster tightening and others favouring a more measured paceThe bank's projected timeframe for hitting stable 2% inflation, currently October this year to March 2028, could be brought forward by hawks, though some analysts say the timeframe is becoming less useful as a communication toolThe Bank of Japan is likely to maintain its warning that inflation could overshoot its 2% target when it meets next week, but will signal that the risk has not increased significantly over the past three months, according to three sources familiar with its thinking cited by Reuters. In its quarterly outlook report due alongside the July 30-31 policy meeting, the central bank is expected to flag lingering inflation risks from the Middle East conflict, strong global AI demand and rising import costs tied to a weak yen.At the same time, the sources said the BOJ believes the likelihood of a worst case scenario, in which severe supply disruption triggers a sharp price surge and forces rapid rate hikes, has diminished since April. That marks a clear shift in tone from April's report, which warned of a big overshoot in inflation given the uncertainty unleashed by the Middle East war following the US-Israeli strikes on Iran on February 28. The BOJ raised its policy rate to a 31 year high of 1% in June after that earlier warning.With the risk of an immediate oil driven inflation shock seen as easing, policymakers are now turning more attention to the extent to which firms continue passing higher costs through to households, the sources said, a shift that reflects a broader focus beyond the direct Middle East fallout toward forces including AI related demand and yen weakness. Reuters polled analysts expect the BOJ to raise rates to 1.25% sometime between October and December, with Nomura Securities strategist Mari Iwashita saying that if prices rise in line with BOJ forecasts through summer and autumn, that would lay the groundwork for the next hike.Core consumer inflation came in at 1.6% in June, staying below the BOJ's target for a fifth straight month and suggesting firms have not yet aggressively passed rising costs onto consumers, though analysts expect core inflation to climb back above 2% later this year as recent producer price gains filter through. One source told Reuters that both upside price risks and downside economic risks appear to have subsided compared with three months ago, while another said the likelihood of the BOJ's baseline projections materialising has increased.The central bank is expected to maintain guidance pledging further rate increases, though board members remain divided on pace, with hawks arguing for room to move faster and others favouring a more gradual approach. Evidence of building price pressures could tip that balance, potentially forcing the BOJ to act sooner than markets currently expect. Hawkish board members could also push to bring forward the bank's projected timeframe for achieving stable 2% inflation, currently estimated between October this year and March 2028, though with inflation already close to target, some analysts say that timeframe is becoming less relevant as a policy signal. JPMorgan Securities Japan chief economist Ayako Fujita said how the BOJ characterises current financial conditions, including ongoing pressure on the yen, will be important for gauging the timing of its next move. This article was written by Eamonn Sheridan at investinglive.com.