June MPM Review: BoJ Sees a Risk That Underlying Inflation Could Exceed the 2% Target: BoJ Watch & Macro Strategy | Japan

Research evidence excerpt

June MPM Review: BoJ Sees a Risk That Underlying Inflation Could Exceed the 2% Target: BoJ Watch & Macro Strategy | Japan

IdeaM

June MPM Review: BoJ Sees a Risk That Underlying Inflation

Could Exceed the 2% Target

Takeshi Yamaguchi, Masayuki Inui, Japan Economics

Mentioned Risk that Underlying Inflation Could Exceed the

2% Target

No surprise in the rate hike and the halt to the tapering of JGB purchases: The Bank of

Japan decided to raise the policy interest rate (the uncollateralized overnight call rate)

from around 0.75% to around 1.0%. Board Member Asada, who was appointed under the

Takaichi administration, dissented on the grounds that “regarding the impact of the

situation in the Middle East, downside risks to production and employment were greater

than upside risks to prices,” but seven members voted in favor of the rate hike, not

including Governor Ueda, who was absent due to hospitalization. As for the plan for long-

term JGB purchases, it was also decided, broadly in line with our prior expectations, to

maintain the monthly purchase amount at around ¥2 trillion from April 2027 onward

(with only one dissenting vote, from Board Member Tamura). We have maintained our

base-case forecast of a rate hike in June 2026 since January, and the market had also come

to price in a hike almost fully after Governor Ueda’s speech at the Kisaragi-kai meeting on

June 3. In that sense, the policy decision itself came as no surprise.

The wording on prices and the economy gives a hawkish impression: The statement

struck us as hawkish, particularly because it clearly referred to “a risk of underlying

CPI inflation deviating upward to a level above the price stability target of 2 percent.”

It noted that “price pass-through stemming from the rise in crude oil prices has been