The Bank of Japan held its policy interest rate at 0.75% Thursday in a 7-2 vote of the Policy Board, with two dissenters (Naoki Tamura and Hajime Takata) voting for an immediate 25-basis-point hike to 1.00%. The decision came despite the Japanese yen weakening to 159.55 against the dollar in overnight trade — within striking distance of the 160-line that had previously triggered Ministry of Finance intervention.
Governor Kazuo Ueda used the post-decision press conference to deliver his most explicit pre-commitment to date: "If the spring shunto-driven wage growth continues to feed through into the core inflation series, and if domestic services prices remain on the projected path, a further policy adjustment at the June meeting becomes appropriate." He explicitly avoided commenting on the yen, but multiple Council member questions on FX were redirected to the Ministry of Finance.
Outlook Report and Inflation Path
The accompanying Outlook Report raised the median fiscal 2026 core CPI forecast to 2.4% from 2.2%, while fiscal 2027 was raised to 2.1% from 1.9%, marking the second consecutive forecast revision higher. The real GDP fiscal 2026 forecast was held at 1.0%. Ueda emphasized that "the gap between Japan's 2% inflation target on a sustained basis and the projected path is now meaningfully smaller than three months ago."
The 2025 Shunto wage round delivered a 5.4% headline base wage increase across the largest 200 firms, the second-highest in three decades. Ueda noted the Council expects 70% pass-through into core services CPI within 12-18 months versus the historical 55% pass-through. The Council's board members are now expected to debate at the May internal meeting whether the August or June meeting is the more appropriate hike timing.
FX and JGB Reaction
USD/JPY initially spiked to 159.85 on the unchanged-rate decision before retracing to 159.30 as the hawkish-conditional press-conference language was digested. The 10-year JGB yield rose 4 basis points to 1.78%, the highest level since November 2008. The Nikkei 225 — already higher on the Mag 4 spillover — held its 1.4% gain. The Topix Banks index was the standout outperformer at +3.4% on the steeper-curve theme.
Outlook
Goldman Sachs Japan economist Naohiko Baba retained his June hike call to 1.00%, noting that "Ueda's reference to wage-inflation pass-through is consistent with the Bank's own econometric framework which has the threshold breached as of the April CPI release." JPMorgan's Ayako Fujita disagrees, projecting the next hike at the September meeting. The next ratesignal will come from the May 7 Reuters Tankan and the May 30 Tokyo CPI release.