Bank of Japan Governor Kazuo Ueda stated clearly at a press conference on Tuesday, April 28th, following the central bank's monetary policy meeting, that there is currently no need for an immediate interest rate hike. He pointed out that uncertainty in the Middle East has reduced the likelihood of achieving price and economic outlook targets, and the central bank requires more time to confirm the impact on prices and the economy. Ueda emphasized that monetary policy will be adjusted based on the extent to which risks materialize, ensuring the Bank does not fall behind the curve.
Significant internal divisions have emerged, with the dissent of three board members drawing attention. Following its two-day monetary policy meeting, the Bank of Japan announced it would keep the policy rate unchanged at 0.75%. This marks the third consecutive meeting where rates have been held steady since the hike in December 2025. Governor Ueda revealed that among the nine policy board members, Hajime Takata, Naoki Tamura, and Junko Nakagawa voted against the decision. Takata proposed considering that "CPI has reached the target level," while Tamura suggested adding wording that "underlying inflation is consistent with the price target" to the outlook report; both proposals were rejected. Ueda stated that, as Governor, he must take the dissent of the three board members seriously. He could not predict how many months it would take to determine the timing of the next rate hike, acknowledging that guiding monetary policy under current conditions is extremely difficult.
Regarding the inflation outlook, Ueda noted that it is unclear whether rising energy prices will affect underlying inflation. The headline inflation rate will remain elevated for some time, but this does not mean the underlying inflation rate is also rising. He expects underlying inflation to remain around 2% in the second half of fiscal 2026, with inflation reaching the Bank's 2% target between the latter half of fiscal 2026 and fiscal 2027. Real interest rates are currently at extremely low levels. The Bank of Japan will continue to raise the policy rate and adjust the degree of monetary easing based on economic activity, prices, and financial conditions.
Ueda also stressed the need to closely monitor the risk of a significant upward shift in inflation to avoid negative impacts on the economy. While current underlying inflation is slightly below 2%, rising oil prices could affect other prices to a greater extent than in the past. He cautioned that it is not always clear whether the risk of prices overshooting or an economic shock will materialize first, necessitating careful assessment.
On the economic assessment, Ueda expressed the view that, despite some weaknesses, the Japanese economy is recovering moderately and possesses resilience. However, he also warned of the need to be vigilant against a further economic slowdown, which depends on the level of supply shocks. The outlook report is based on the assumption of falling oil prices, but due to the Middle East situation, Japan's economic growth may slow in fiscal 2026.
Detailing the conditions for a rate hike, Ueda stated that if the current supply shock triggers chain reactions, a rate hike would be necessary. Upside risks to inflation could be one reason for a hike, but not the only reason. He will closely monitor the impact of Middle East developments on financial and foreign exchange markets, the Japanese economy, and prices. While assessing the likelihood of the baseline scenario materializing, he will consider the timing and pace of adjusting the policy rate. The central bank will implement monetary policy appropriately to ensure it does not fall behind the curve. The sustainability of trends, the relationship between risks and the economy, and price developments are currently difficult to assess, making maintaining the status quo the prudent choice at this stage.
Following Ueda's remarks, the yen came under pressure again, with the USD/JPY pair rebounding to around 159.40, recovering most of its post-decision losses.
As of 15:19 Beijing time, USD/JPY was quoted at 159.40/41.
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