Bank of Japan set to hold rates steady as officials mull halving the pace of tapering JGB purchases
- The Bank of Japan is set to keep interest rates steady at 0.50% on Tuesday.
- The focus will be on the BoJ’s JGB purchases tapering plan as well as any hints on the timing of the next rate hike.
- The BoJ policy announcements are expected to significantly impact the Japanese Yen.
The Bank of Japan (BoJ) is widely expected to leave the short-term interest rate unadjusted at 0.5% after the two-day June monetary policy review ends on Tuesday.
In the absence of quarterly economic projections, all eyes will be on the BoJ’s plans on tapering its Japanese government bond (JGB) purchases and hints on the timing of the next interest rate hike. The BoJ policy announcements will likely stir volatility around the Japanese Yen (JPY).
What to expect from the BoJ interest rate decision?
The BoJ is set to extend the pause in its rate-hiking cycle into the third consecutive month in June, maintaining the policy rate at the highest level in 17 years.
At its April 30-May 1 policy meeting, the Japanese central bank stuck to its rhetoric that it “will continue to raise interest rates if the economy and prices move in line with forecasts.”
The bank also referred to the more volatile outlook due to US trade policy: “Uncertainty around tariff impact on the economy remains high even after tariffs are finalized.”
Since then, trade tensions have eased, courtesy of the US-China truce and the prospects of US trade agreements with Japan and the European Union (EU).
"If trade negotiations between countries proceed and uncertainty over trade policies diminish, overseas economies will resume a moderate growth path. That, in turn, will accelerate Japan's economic growth," Ueda said in a speech earlier this month, keeping hopes alive for another rate hike by year-end.
Therefore, markets expect the BoJ Chief Ueda to lean slightly hawkish while speaking on the interest rate outlook during the post-policy meeting press conference at 6.30 GMT.
Additionally, concerns over sticky food inflation, especially due to the rising costs of Japan’s staple rice, could prompt Ueda to deliver the hawkish message.
“Japan was now experiencing a second round of food price inflation driven by supply shocks, which adds to inflationary momentum from higher wages,” Ueda said previously.
Japan's core Consumer Price Index (CPI) inflation exceeded the BoJ's 2% target for over three years and hit a more than two-year high of 3.5% in April due largely to a 7% spike in food prices, per Reuters.
Apart from the BoJ’s communication on the next interest rate move, markets will also closely scrutinize the central bank’s assessment of the bank’s current JGB tapering plan of JPY400 billion per quarter.
According to a report carried by the Nikkei Asian Review last Saturday, the BoJ is considering halving the pace of quarterly tapering in its purchases of JGB to JPY200 billion ($1.4 billion) from April 2026.
The BoJ’s tapering plan is expected to be supported by a majority of the policy board members, the Nikkei added.
The potential reduction to the central bank’s tapering plan remains critical in light of the recent bond market turmoil when the yields on 40-year JGBs hit all-time highs.
How could the Bank of Japan's interest rate decision affect USD/JPY?
The USD/JPY pair continues to trade in a 250-pips familiar range at around 144.00 in the run-up to the BoJ event risk.
If the BoJ maintains its rhetoric of remaining data-dependent and following the meeting-by-meeting approach for a policy move, the Japanese Yen (JPY) could come under intense selling pressure against the US Dollar (USD), driving USD/JPY back toward the 146.50 static resistance.
Conversely, USD/JPY could resume its downtrend toward 142.00 if the BoJ voices concerns over stubborn rises in food costs and acknowledges easing trade tensions. The BoJ’s hawkish tilt could ramp up the odds of another rate hike by the turn of this year, triggering a fresh JPY rally.
Any big reaction to the BoJ policy announcements could be temporary as Governor Ueda’s press conference could inject fresh volatility around the pair.
From a technical perspective, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, notes: “The current market positioning suggests the USD/JPY remains exposed to two-way risks ahead of the BoJ’s decision. The pair is battling the 21-day Simple Moving Average (SMA) and the 50-day SMA confluence near the 144.00 region, with the 14-day Relative Strength Index (RSI) challenging the midline to regain the bullish territory.”
“A hawkish BoJ hold could provide a fresh leg to the USD/JPY downtrend, with the strong support area near 142.50 likely at risk. The next cushion is seen at the April 29 low at around 142.00. A decisive move below that level will target the 140.00 psychological mark. On the flip side, buyers need acceptance above the 145.00 round level to revive the uptrend toward the May 29 high of 146.29. Further up, the 100-day SMA at 147.24 will come into play,” Dhwani adds.
Economic Indicator
BoJ Interest Rate Decision
The Bank of Japan (BoJ) announces its interest rate decision after each of the Bank’s eight scheduled annual meetings. Generally, if the BoJ is hawkish about the inflationary outlook of the economy and raises interest rates it is bullish for the Japanese Yen (JPY). Likewise, if the BoJ has a dovish view on the Japanese economy and keeps interest rates unchanged, or cuts them, it is usually bearish for JPY.
Read more.Next release: Tue Jun 17, 2025 03:00
Frequency: Irregular
Consensus: 0.5%
Previous: 0.5%
Source: Bank of Japan
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
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