BoJ: No one knows where the neutral rate is

Research evidence excerpt

BoJ: No one knows where the neutral rate is

J P M O R G A N Japan Economic Research

16 June 2026

BoJ: No one knows where the

neutral rate is

As widely expected, the BoJ raised the policy rate by 25bp to 1%. Since Governor Economic and Policy Research

Ueda was absent from the meeting, the vote was taken by eight members. Of these, Ayako Fujita

Asada – the first member appointed under the Takaichi administration – (81-3) 6736-1172

emphasized downside risks to production and employment and cast the sole ayako.fujita@jpmorgan.com

dissenting vote against the rate hike. JPMorgan Securities Japan Co., Ltd.

Regarding JGB purchases, the BoJ decided to maintain the current plan to reduce

purchases through March 2027, but to halt further reductions from April 2027 and

conduct purchases of around JPY2 trillion per month. The Bank noted that this

decision could be changed depending on circumstances; however, if this policy is

maintained, the BoJ’s balance sheet will continue to shrink, though the pace of

contraction will ease from 2028 onward.

The policy statement showed no material change other than the view that the major

downside risks to the economy have “decreased compared with a while ago”. On

inflation, it pointed to “a risk of underlying CPI inflation deviating upward to a

level above the price stability target of 2%”, but this is not new information given

that the April Outlook Report’s BoJ core inflation forecast (ex. fresh food and

energy) already implies inflation above 2% throughout the projection period

through FY2028. As Deputy Governor Uchida also noted at the press conference,

in terms of what has changed since the April meeting, the decline in downside

growth risks appears to have been the backdrop to the decision to proceed with a

rate hike this time.