Policy Statement
1. Interest Rate Decision: The target interest rate was maintained at 0.75% by a 6-3 vote. Central Bank policymakers Junko Nakagawa, Hajime Takada, and Naoki Tamura proposed a rate hike to 1.0%.
2. Economic Forecasts: The median forecasts for real GDP growth in fiscal years 2026-2028 are 0.5%, 0.7%, and 0.8%, respectively (previous forecasts for 2026 and 2027 were 1.0% and 0.8%).
3. Inflation Forecasts: The median forecasts for core CPI in fiscal years 2026-2028 are 2.8%, 2.3%, and 2.0%, respectively (previous forecasts for 2026 and 2027 were 1.9% and 2.0%).
4. Policy Statement: The risks to the economic outlook are tilted to the downside, while the risks to the inflation outlook are tilted to the upside. Monetary policy will be implemented as needed from the perspective of achieving the 2% inflation target sustainably and stably.
5. Market Reaction: The yen strengthened significantly after the policy decision was announced, with the USD/JPY exchange rate falling to a low of 158.95. The Nikkei 225 index fell by 1%.
Kazuo Ueda's Press Conference
1. Economic Outlook: The Japanese economy is recovering moderately. Due to the situation in the Middle East, economic growth is expected to slow in fiscal year 2026. Price forecasts have been significantly revised upwards, as rising oil prices may temporarily push up prices for various goods and services.
2. Inflation Outlook: Inflation is expected to reach the Bank of Japan's 2% target between the second half of fiscal year 2026 and fiscal year 2027. Underlying inflation is still expected to remain at around 2% in the second half of fiscal year 2026.
3. Interest Rate Outlook: The Bank of Japan will continue to raise interest rates, adjusting the degree of monetary easing based on economic activity, prices, and financial conditions. There is no pre-set timeframe (for determining whether conditions for another rate hike are met). Monetary policy will be implemented appropriately to ensure it does not lag behind the situation. A policy decision may be made before price data confirms upward pressure on prices.
4. Middle East Situation: Given the high degree of uncertainty surrounding the Middle East conflict, the likelihood of price and economic prospects materializing has decreased. With core inflation approaching 2%, there is concern that businesses may be more proactive in passing on rising costs of oil-related commodities to consumers.
6. Market Reaction: The yen weakened during Kazuo Ueda's press conference, and USD/JPY rebounded to around 159.4, recovering most of the losses following the interest rate decision.
