BoJ policy decision Highlights: Bank of Japan keeps interest rate unchanged at 0.75%; 3 board members call for rate hike

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BOJ Policy Board Members’ Forecasts and Risk Assessment

Forecasts of the majority of the Policy Board Members

The year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) is likely to be in the range of 2.5-3.0% in fiscal 2026, as the rise in crude oil prices is expected to push up prices, mainly of energy and goods, with moves to pass on wage increases to selling prices continuing.

Thereafter, with the waning of the effects of high crude oil prices, the rate of increase is expected to decline to the range of 2.0-2.5% in fiscal 2027 and to around 2% in fiscal 2028, BOJ said.

Japan’s economic growth is likely to decelerate in fiscal 2026, since the rise in crude oil prices reflecting the impact of the situation in the Middle East is expected to push down corporate profits and households’ real income through factors such as a deterioration in the terms of trade, Bank of Japan said.

However, the economy is expected to continue growing moderately, albeit at a decelerated rate, since it is likely to be underpinned by factors such as the government's various measures and accommodative financial conditions, in addition to developments such as continued high levels of profits in the corporate sector. Japan’s economic growth rate is likely to rise moderately from fiscal 2027 onward, since it is projected that the adverse effects of high crude oil prices will wane and that a virtuous cycle from income to spending will gradually intensify, it added.

BOJ Governor Kazuo Ueda is expected to brief media on the decision at 3:30 pm (12:00 IST).

The Bank of Japan kept interest rates steady, but three in the nine-member board proposed hiking borrowing costs, signalling the bank’s concern over inflationary pressures from the Middle East conflict.

Board members Hajime Takata, Naoki Tamura and Junko Nakagawa dissented to the decision, instead calling for a hike to 1.0%, Reuters reported.

Bank of Japan maintains short-term interest rate target at 0.75%

Economy minister Minoru Kiuchi has told reporters he will attend Tuesday’s BOJ meeting, Reuters reported. Two government representatives, one from the Ministry of Finance and another from the Cabinet Office, can attend the BOJ’s policy meetings. They cannot vote but can voice opinions and request a delay in the board’s vote on policy decisions.

Along with the Bank of Japan, investors will focus on other central bank decisions this week, including from the US Federal Reserve, European Central Bank and the Bank of England. The US Federal Reserve is widely expected to hold interest rates steady at the end of its two-day meeting on Wednesday.

Hawkish board member Hajime Takata may propose hiking the policy rate to 1.0%, though it is likely to be turned down by the board as had been the case in the past two meetings, Reuters reported.

Japan CPI inflation rose 1.5% YoY in March, up from 1.3% in February. Core CPI excluding fresh food accelerated for the first time in five months to 1.8%.

After the BOJ held its policy rate steady at last month’s review, markets saw a bias for near-term tightening on fears surging oil prices would feed through to inflation. A Reuters poll taken April 7-14 found two-thirds of economists expected the BOJ to lift its policy rate to 1.00% by end-June, with views split on whether the rise would come in April or June.

But since the mid-month, sentiment has softened on an April increase as the prospect of a protracted war has kept markets volatile and clouded the economic outlook. A Reuters exclusive last week showed BOJ insiders pointing to steady rates given uncertainty over the economic and price outlook. Market expectations are now in line with that, Reuters reported.

Markets are focusing on the BOJ’s ​quarterly outlook report and comments from Governor Kazuo Ueda for clues on how the protracted Iran war affects its rate-hike ​path.

Crude oil prices gained as efforts to end the US-Iran war appear stalled, with the crucial Strait of Hormuz waterway still mainly shut. Brent crude futures for June climbed 0.4% to $108.68 a barrel, while US West Texas Intermediate (WTI) crude for June rose 0.6% to $96.96.

Asian stocks traded mixed as investors awaited developments in the US-Iran peace talks and a slew of central bank decisions. Japan’s Nikkei 225 declined 0.49%, while the Topix gained 0.23% ahead of the BoJ decision.

Meanwhile, South Korea’s Kospi rose 0.1%, while the Kosdaq dropped 0.92%. Hong Kong Hang Seng index futures indicated a lower opening.

The Japanese yen steadied ahead of the Bank of Japan’s latest policy decision. The yen was flat against the dollar at 159.49 yen, with the BOJ widely expected to keep interest rates on hold at 0.75% later in the day.

Japanese Finance Minister Satsuki Katayama said that the government was standing by around the clock and ready to take action against foreign exchange volatility while closely coordinating with the United States, Reuters reported. Speaking at a regular news conference, Katayama added that volatility in the crude oil futures market was affecting the foreign exchange market.

After keeping interest rates near zero for 17 years, the BOJ started monetary tightening in 2024, when it raised rates to a range of 0 to 0.1% from minus 0.1% earlier.

Subsequently, the central bank raised rates on 31 July 2024, on 24 January 2025 and on 19 December 2025. At present, BoJ maintains its key short-term interest rate at 0.75%.

Most economists expect the BOJ to keep the policy rate steady at 0.75% at the end of its two-day meeting today, even as the yen hovers near levels that have prompted past interventions.