Goldman Sachs: The BoJ - FJElite
- The Bank of Japan (BOJ) held its Monetary Policy Meeting (MPM) on June 15-16, and, as was widely expected, decided to raise the policy interest rate by 0.25 pp to 1% (by a majority vote). It also decided to maintain the current JGB purchase plan until the end of March 2027, which will gradually reduce the monthly purchase amount to around ¥2 tn by the Jan-Mar 2027 quarter, and to maintain the monthly purchase amount at around ¥2 tn thereafter (by a majority vote).
- Regarding the reason for deciding on a June rate hike, Deputy Governor Shinichi Uchida pointed out that with the economy developing in line with the baseline scenario, downside risks to the economy have decreased, and furthermore, as underlying inflation approaches 2%, there is a risk of underlying inflation exceeding 2%.
- He went on to state that the reason for mentioning the risk of underlying inflation exceeding 2% in the latest statement was that, with underlying inflation approaching 2%, it warrants a focus on the risk of it exceeding 2% (as previously envisioned by the BOJ), and that this does not mean the phase of inflation has changed.
- Furthermore, Deputy Governor Uchida said he believes the BOJ is currently not behind the curve. Regarding the possibility of a wage-price spiral, he stated that the current rate of wage increases is broadly consistent with the 2% price stability target, meaning a “virtuous spiral” is occurring.
- January 2027 is still our base-case scenario for the next rate hike. However, uncertainty over the timing of the next rate hike is high. With underlying inflation approaching 2%, even small changes such as further modest yen depreciation, could significantly increase the risk of it exceeding 2%. For this reason, the probability distribution around the timing of the next rate hike is seen as skewed toward earlier rate hikes. On the other hand, the actual timing of rate hikes will also be significantly influenced by the degree of progress in communication with the government. The timing of the rate hike could be influenced by when conditions are in place from the perspective of communication with the government.