BoJ: June hike risk and Oil shock – TD Securities

TD Securities analysts Alex Loo and Prashant Newnaha report that the Bank of Japan (BoJ) left its policy rate at 0.75% with a 6–3 vote, as three hawkish dissenters backed a 25 bps hike. They stress that the Bank sharply cut its FY26 Gross Domestic Product (GDP) forecast and raised core inflation projections, reflecting the impact of higher Oil prices linked to Middle East tensions.

BoJ balances growth and inflation risks

"The BoJ left the target rate unchanged at 0.75% (cons/TD: 0.75%) which was widely expected, although there were 3 dissenters who called for a 25bps hike in today's decision."

"Governor Ueda repeatedly emphasized upside risks to price outlook and downside risks to growth, attributing it to the Middle East situation. Prior to the press conference, the 6-3 vote raised investors' expectations that Governor Ueda may commit to a June hike, but his remarks sound more non-committal as the BoJ probably wants to preserve optionality."

"The read from today's press conference feels similar to the March press conference when Ueda kept the doors open for a hike at the next meeting but refuses to commit. OIS markets are pricing in 17bps for June as markets believe that the BoJ is behind the curve and see the need for further policy normalization."

"We still hold onto our June hike call, but we don't have high confidence after today's remarks and our interpretation of the Bank's outlook. As long as the Strait of Hormuz remains closed, we believe the BoJ may opt for a prolonged pause given the threat of demand destruction on Japan's economy."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)