Japan Set For 30-Year Rate High: Leadership Turmoil Raises Uncertainty

The Bank of Japan is almost certain to raise its benchmark interest rate to 1% at its June 15-16 policy meeting, a level the country has not seen since 1995. But with Governor Kazuo Ueda hospitalized and unable to chair the meeting, the real question is what comes next.

A Reuters survey of 70 economists found 94% expect the rate to move by month’s end. The case is clear: wholesale prices rose 4.9% year-over-year in April, the yen has weakened past 160 per dollar, and Japan has spent 11.7 trillion yen ($73 billion) in currency intervention since late April to slow the decline.

A BOJ Rate Hike Without Its Architect

Ueda, 74, entered the hospital on June 10 for treatment of an infected liver cyst, according to CNBC. It marks the first time since 1998 that a BOJ governor has missed a policy-setting meeting. Nikkei Asia reported that Deputy Governor Ryozo Himino will chair in his place, while Deputy Governor Shinichi Uchida, recently diagnosed with leukemia, will conduct the post-meeting press conference.

The BOJ rate hike itself is not in doubt, but concerns and questions linger about what comes next. Past BOJ meetings have shown that markets can move as sharply on post-meeting language as on the rate decision itself.

Mari Iwashita, executive rates strategist at Nomura Securities, told Reuters the BOJ may avoid clear signals on the future rate path:

“It’s also becoming more unclear on whether the BOJ would hike again this year.” Shigeto Nagai, head of Japan economics at Oxford Economics, framed the hike as defensive: “I interpret the coming rate hike as a defensive measure intended to prevent further yen depreciation.”

Beyond 1%: Who Drives the Next Phase

More than 75% of economists in a recent Reuters survey expect a follow-up hike to 1.25% in Q4 2026, with two-thirds forecasting 1.5% by mid-2027.

But the political calendar could slow that path. Prime Minister Sanae Takaichi, a proponent of loose fiscal and monetary policy, gains the power to reshape the BOJ board when two hawkish members’ terms expire in July 2027.

“Next year’s personnel shift could overhaul the balance within the board,” said Tsuyoshi Ueno, senior economist at NLI Research Institute. “The BOJ may find it difficult to do anything that could draw the government’s ire.”

The June hike is essentially decided. Whether Japan’s tightening cycle continues beyond it depends on economic conditions, the governor’s recovery, and the prime minister’s patience.