Japan

Research evidence excerpt

Japan

at the major downside risks to the economy have

pressure the BoJ faces from a government that favors main- “decreased compared with a while ago”. On inflation, it

taining a highly accommodative monetary policy framework. pointed to “a risk of underlying CPI inflation deviating

upward to a level above the price stability target of 2%”, but

We do not think this rate hike will materially weigh on the this is not new information given that the April Outlook

economy. We continue to expect the BoJ to deliver the next Report’s BoJ core inflation forecast (ex. fresh food and ener-

hike in October and to explore two more hikes in 2027 at a gy) already implies inflation above 2% throughout the projec-

pace of roughly one hike every six months. That said, the tion period through FY2028. As Deputy Governor Uchida

administration’s persistent preference for restraining rate also noted at the press conference, in terms of what has

hikes suggests future tightening is also likely to be accompa- changed since the April meeting, the decline in downside

nied by political friction. This means that, despite the BoJ growth risks appears to have been the backdrop to the deci-

sending a signal to the market this week that it will continue sion to proceed with a rate hike this time.

to raise rates, the market will likely continue to question the

BoJ’s ability to follow through on its policy intentions. As a Deputy Governor Uchida chose his words carefully through-

result, market pressure for further rate hikes is likely to per- out the press conference, but most questions focused on the

sist even after this hike—especially as other major central Bank’s assessment of upside inflation risks and the implica-

banks turn more hawkish—which in turn should help bring tions for future rate hikes.