The Bank of Japan is widely expected to raise interest rates at its June 16 policy meeting, according to three sources familiar with the central bank’s thinking. The move would push Japan’s short-term policy rate from 0.75% to 1% — a level not seen since 1995.
Bloomberg reports BOJ
officials will consider a 25 bp rate hike at the June 15-16 meeting, which would take the policy rate to 1%.
Officials also see scope for another rate hike later this year, citing still-low real rates and upside inflation risks.
The BOJ is also expected… pic.twitter.com/ZqDU3HtmuS
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The sources, who spoke anonymously as they are not authorized to speak publicly, said the decision hinges on the Middle East situation. Unless the Iran conflict sharply escalates and rattles global markets, a rate hike is seen as likely.
Markets are already reflecting that view, with traders pricing in roughly an 80% chance of a hike.
BOJ Governor Kazuo Ueda made his position clear in a speech on Wednesday. His comments were widely read as a pivot toward prioritizing inflation control and opening the door to more frequent rate increases going forward.
Two BOJ board members, Kazuyuki Masu and Junko Koeda, have also warned of growing price pressures in recent weeks. Analysts say they could join three other hawkish members in voting for a June hike.
Japan’s wholesale prices rose 4.9% in April compared to a year earlier — the fastest pace in three years. Much of that increase has been driven by higher oil and chemical costs tied to the Iran war.
Japan’s core consumer inflation has dipped below the BOJ’s 2% target in recent months, partly because of government energy subsidies. But analysts expect it to climb back above 2% later this year as those effects fade and energy costs stay elevated.
A weaker yen has added to the pressure. The sliding currency raises the cost of imports across the board, pushing inflation higher and strengthening the case for tighter monetary policy.
The BOJ exited its decade-long stimulus program in 2024 and has raised rates several times since, including in December. Each hike has reflected the bank’s view that Japan is getting closer to sustainably meeting its inflation target.
Prime Minister Sanae Takaichi, who has generally preferred looser monetary policy, gave what one former BOJ board member called a “reluctant nod” to a June hike after meeting with Ueda on May 22. Former board member Makoto Sakurai told Reuters the premier likely understands the hike is unavoidable.
The June meeting will also address the BOJ’s bond-buying reduction plan. The current taper runs through March 2027, and a new blueprint for fiscal 2027 needs to be set.
Two sources say the BOJ is leaning toward pausing or slowing the pace of bond purchase reductions to avoid disrupting markets. Ueda noted on Wednesday that bond market function has improved but that stability must be maintained as the BOJ steps back from buying Japanese government bonds.
The two-day policy meeting ends on June 16.
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