Overview
- Markets are pricing roughly an 80% chance that the Bank of Japan will raise its short-term policy rate by 25 basis points to 1% at the two-day policy meeting that ends June 16.
- Governor Kazuo Ueda signalled a pivot toward fighting inflation in a public speech this week, a change that officials and analysts read as opening the door to more frequent rate increases.
- Officials and anonymous BOJ sources say the June decision remains conditional on any sharp escalation of the Iran-related Middle East conflict because a big shock to energy markets could upend financial stability.
- Policymakers are also weighing slowing or pausing the planned taper of government bond purchases for fiscal 2027 to avoid disrupting bond-market functioning as the bank withdraws stimulus.
- Wholesale prices jumped 4.9% year-on-year in April largely from higher oil and chemical costs, a trend that can push consumer prices up, raise borrowing costs for small firms, and risk global funding shocks if the yen strengthens and leveraged trades unwind.