Ueda Speech: BoJ Governor discusses policy outlook after the expected interest rate hold

Bank of Japan (BoJ) Governor Kazuo Ueda is addressing the press conference, explaining the reason behind leaving the key interest rate unchanged at 0.75% in the April policy meeting.

BoJ press conference key highlights

Middle East situation remains uncertain. 

Japan's economy recovering moderately albeit with some weakness. 

Japan's economic growth likely to slow down in FY 2026 due to Middle East situation. 

Need to pay close attention to how Middle East developments affect financial, FX markets and Japan economy, prices. 

Need to pay close attention to risk of inflation significantly devitating upwards, exerting negative impact on economy. 

Real interest rates are at significantly low levels. 

BoJ will continue to raise policy rate, adjust degree of monetary accommodation according to economic activity, prices, financial conditions. 

Wll consider timing and pace of adjustment while monitoring how Middle East developments affect Japan economy, price and examining likelihood of realising baseline scenario. 

Board member Takata suggested including line on CPI already achieving target level. 

Board member Tamura suggested including a line that underlying inflation in line with inflation target in outlook report. 

Both proposals turned down. 

Oil prices could affect prices more than before.

We want to take a little bit more time in gauging how MidEast situations would affect Japan economy, prices, likelihood of achieving target.

Underlying inflation slightly below 2% now.

I can't say how many months it would take to gauge timing of our next rate hike.

Will take appropriately monetary policy to make sure we don't fall behind the curve. 

We stood pat today because likelihood of our main scenario outlook had lowered. 

Take the fact that 3 board members dissented seriously as chair. 

It shows the extreme difficulty of steering monetary policy under current circumstances. 

Not seeing immediate need to raise rates. 

Need to raise rates if current supply shocks have a secondary knock-on effect. 

Inflation upward risk could be reason for raising rates but not only one.

The section below was published on April 28 at 3:30 GMT to cover the Bank of Japan's monetary policy announcements and the initial market reaction.

The Bank of Japan (BoJ) board members decided to leave the short-term interest rate unadjusted at 0.75%, following the conclusion of its two-day monetary policy review meeting on Tuesday.

The decision aligned with the market expectations.

Summary of the BoJ’s Monetary Policy Statement

BoJ makes policy decision by 6-3 vote.

BoJ board members Nakagawa, Takata and Tamura dissented to rate decision.

Nakagawa, Takata and Tamura proposed raising short-term interest rate target to 1.0% from 0.75%.

Proposal by Nakagawa, Takata and Tamura turned down by majority vote.

BoJ’s Nakagawa said while situation in Middle East remained unclear, given economic developments, risks to prices were skewed to the upside under accommodative financial conditions.

BoJ’s Takata said price stability target had been more or less achieved and that risks to prices in Japan were already skewed to the upside due to the second-round effects of price rises stemming from overseas developments.

Will continue to raise interest rates in accordance with developments in economy, prices, financial markets.

Will scrutinise timing, pace of policy adjustment with close eye on economic, price impact from Middle East development.

Will conduct monetary policy as appropriate from perspective of sustainably, stably achieving 2% inflation target.

Japan's economic growth likely to decelerate in fiscal 2026.

Corporate profits, households' real income to be pushed down by factors such as deterioration in terms of trade reflecting rise in crude oil prices.

Economy to be underpinned by government's various measures such as fuel oil subsidies, other factors.

BoJ’s quarterly Outlook Report

Real interest rates are at significantly low levels.

Underlying inflation likely to be at level generally consistent with 2% target in second half of fiscal 2026 and fiscal 2027.

Risks to economic outlook skewed to downside.

Risks to inflation skewed to upside.

Japan's economic growth is likely to decelerate in fiscal 2026.

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.

Economy is expected to continue growing moderately, albeit at a decelerated rate.

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.

Projected year-on-year rate of increase in the CPI for fiscal 2026 is significantly higher, reflecting the rise in crude oil prices.

There are various risks to the outlook.

Necessary to pay particular attention to the impact of the future course of the situation in the Middle East on financial and FX markets.

Necessary to pay due attention to keep the risk of inflation significantly deviating upward from materializing.

Possible that the rise in crude oil prices is passed on to the price of various goods and services more easily than before.

Board's core CPI fiscal 2026 median forecast at +2.8% vs +1.9% in January.

Board's core CPI fiscal 2027 median forecast at +2.3% vs +2.0% in January.

Board's core CPI fiscal 2028 median forecast at +2.0%.

Board's real GDP fiscal 2026 median forecast at +0.5% vs +1.0% in January.

Board's real GDP fiscal 2027 median forecast at +0.7% vs +0.8% in January.

Board's real GDP fiscal 2028 median forecast at +0.8%.

BoJ Report on Risks

Possible that the rise in crude oil prices is passed on to the price of various goods and services more easily than before.

Attention will also need to be paid to the possibility that food prices could rise by more than expected through higher market prices for raw materials.

There is risk that large-scale disruptions in supply chains will occur, exerting a significant impact on the production activity of Japanese firms.

Regarding AI, strong business fixed investment could push up the global economy, but if profits do not expand in line with such investment, adjustment pressure could arise, accompanied by changes in asset prices.

Exchange rate developments are, compared to the past, more likely to affect prices.

Trade policies announced so far have partly led to a change in the trend of globalization.

Medium- to long-term inflation expectations have risen moderately.

Market reaction to the BoJ policy announcements

USD/JPY meets fresh supply and eases back toward 159.00 in an immediate reaction to the Bank of Japan's (BoJ) no-rate-change decision, still down 0.08% on the day. 

This section below was published on April 27 at 23:00 GMT as a preview of the Bank of Japan Interest Rate Decision.

• The Bank of Japan is expected to keep rates on hold, but a hike is not off the table.
• Uncertainty spurring from the Middle East war will take its toll on the decision.
• Macro fundamentals back the case for additional rate hikes in Japan.

The Bank of Japan (BoJ) will announce its monetary policy decision on Tuesday, at around 3:00 GMT. The BoJ is widely expected to deliver a hawkish hold, keeping the benchmark interest rate unchanged at 0.75% while also hinting at a willingness to hike rates. The latest change in interest rates took place in December, when BoJ officials hiked by 25 basis points (bps)

Japanese policymakers are between a rock and a hard place: The Middle East war is a global source of uncertainty, while the local macro puts pressure on policymakers to act promptly.

Hotter-than-expected inflation and a tightening labor market hint at faster interest rate hikes, which run counter to the BoJ officials' views.

In the meantime, the Middle East war continues. Hopes for a quick resolution fade as time goes by, with the war about to turn two months old.

What to expect from the BoJ interest rate decision?

According to the latest available data, the Consumer Price Index (CPI) rose 1.5% YoY in March, up from 1.3% in February and above the 1.4% anticipated by market players. Core annual inflation, which excludes volatile food and energy prices, rose to 1.8%, up from the expected 1.5%. Meanwhile, the Unemployment Rate stood at 2.6% in February.

If the BoJ could base monetary policy solely on these data, policymakers should pull the trigger in this meeting. However, the ongoing crisis in the Middle East paints a different picture. Rising Oil prices and persistent supply disruptions are expected to have a profound and prolonged impact on inflation worldwide. Japan is no exception. That opens the door for a surprise interest rate hike, although we are talking about Japan, and surprises are not usually in their script.

Policymakers are well aware of the situation. In a press conference in Washington following the 20-G meeting, BoJ Governor Kazuo Ueda noted that higher Oil prices “pose both upside risks to prices and downside risks to the economy, making policy responses difficult.”

Ueda added: “Developments in the Middle East will be a crucial factor (for the BoJ's policy decision), but the outlook remains quite uncertain." Finally, he repeated the central bank’s commitment to price stability: “We will take the most appropriate response to achieve our 2% price target in a sustainable and stable way.”

Governor Ueda will offer a press conference following the rate announcement, as usual. And while market participants anticipate a hawkish lean, the focus will be on how hawkish Japanese policymakers are willing to be in such an uncertain environment.

How could the Bank of Japan's monetary policy decision affect USD/JPY?

Heading into the announcement, market participants expect the BoJ to hold its fire but deliver at least 50 bps rate hikes through 2026. The monetary policy Board is likely to keep rates on hold in its April meeting, not because it is the right decision, but to prevent a market shock. Policymakers are likely to anticipate additional rates coming, which will not be a big surprise.

There are two quite hawkish scenarios. The first would be the BoJ actually triggering a rate hike. The second would be to directly pre-announce a rate hike at the next monetary policy meeting. Furthermore, if officials hint at worries about growth, something that so far they have avoided, the case for additional rate hikes will increase, and hence, boost demand for the Japanese Yen (JPY). The odds for any of those happening are quite limited.

A dovish announcement is off the table, given the ongoing Middle East war.

Valeria Bednarik, Chief Analyst at FXStreet, notes: “The USD/JPY pair trades in quite a limited range just below 160.00 since early April, driven by sentiment related to the Persian Gulf crisis. Speculative interest is looking at the US Dollar (USD) as the preferred safe-haven, with optimism boosting demand for the Greenback, and pessimism leading to USD sell-offs. The BoJ announcement, unless a surprise, is likely to have a limited impact on the pair.”

Bednarik adds: “From a technical point of view, the USD/JPY pair is neutral. In the daily chart, the pair develops around a flat 20-day Simple Moving Average (SMA), which has been unable to find a way since early April. The 100- and 200-day SMAs keep heading higher, far below the current level, in line with the former dominant bullish trend. At the same time, the pair develops not far below its 2026 peak in the 160.40 region. Finally, technical indicators head marginally lower within neutral levels, far from providing a clear directional clue. The pair could fall with a hawkish announcement, with a break below 159.00 opening the door for a test of the 158.40 region. Below the latter, the slide could continue towards 157.90. As previously noted, 160.00 provides resistance in the case of sudden JPY weakness, with additional gains aiming to retest the year high.”