The Bank of Japan policy board voted 8-1 on Friday to maintain the unsecured overnight call rate target at 0.50%, with board member Naoki Tamura the sole dissent in favor of a 25-basis-point hike. Governor Kazuo Ueda's post-meeting press conference characterized current real rates as 'still significantly accommodative' but pushed the timing of the next adjustment to 'the back half of fiscal 2026' — a phrasing markets read as October-December calendar 2026 at earliest.
USD/JPY surged 1.4% to 158.20 in immediate reaction — a seven-week high for the dollar pair — as the rate-differential trade reasserted itself against the still-elevated Federal funds target of 4.25-4.50%. The Nikkei 225 gained 1.8% to 39,410 with the export-heavy index benefiting from the weaker currency: Toyota Motor (7203.T) added 2.4%, Sony Group (6758.T) climbed 3.1%, Tokyo Electron (8035.T) rose 4.2%, and Mitsubishi UFJ (8306.T) — the rate-sensitive bellwether — declined 2.6% on the dovish tilt.
JGB Curve Bull-Steepens
The 10-year Japanese government bond yield rallied 6 basis points to 1.18%, the lowest since mid-March, while the 2-year yield declined 4 bp to 0.74%. The 2s10s curve steepened by 2 bp to 44 bp. JGB futures (JBM6) closed at 142.18, up 0.41 points. The 30-year auction Tuesday will be the next significant supply test, with a tail-risk function elevated given the BoJ's continued tapering of monthly rinban purchases — now at ¥3.6 trillion versus ¥6.0 trillion at the March 2024 peak.
Inflation Trajectory
Tokyo CPI for April was released earlier last week at 2.4% headline year-on-year and 2.6% core ex-fresh-food — both moderately above the 2% BoJ target but decelerating from March's 2.7% headline. Wage data from the spring shunto labor negotiations finalized at +5.18% — the highest in 33 years — supporting Ueda's view that inflation expectations are 'becoming more firmly anchored' even as the policy path remains gradual.