BOJ to consider slower bond taper as fresh global risks emerge
The BOJ said it will conduct an interim review of the fiscal 2026 taper programme at its policy meeting in June next year.
"In case long-term interest rates rise rapidly, the BOJ will respond nimbly, such as by increasing its bond purchases," the central bank said in the statement, adding that its JGB holdings will fall roughly 16-17% in March 2027 from levels in June 2024.
INFLATION PRESSURES
Last year, the BOJ ended its bond yield curve control and began tapering its huge bond buying. It raised short-term rates to 0.5% in January on the view Japan was making progress towards durably achieving its 2% inflation target.
But uncertainty over the economic impact of U.S. President Donald Trump's tariffs has put major central banks, including the BOJ and Federal Reserve, in a holding pattern. The Fed is likely to reiterate its patient stance while leaving interest rates unchanged in the 4.25%-4.50% range on Wednesday.
A slight majority of economists in a Reuters poll expected the BOJ's next 25-basis-point increase to come in early 2026.
The BOJ's policy normalisation is at a crossroads as U.S. tariffs threaten to hurt Japan's export-heavy economy, forcing the board to cut its growth and inflation forecasts on May 1.
Japanese Prime Minister Shigeru Ishiba and Trump on Monday failed to achieve a breakthrough that would cut or eliminate tariffs that threaten to hobble the export-reliant economy.
The escalating conflict between Iran and Israel adds to headaches for policymakers as it could muddle the price outlook by boosting crude oil prices and heightening market volatility.
But delaying rate hikes for too long could leave the BOJ behind the curve in dealing with inflationary pressure, as firms continue to pass on rising raw material and labour costs.
Japan's core inflation hit a more than two-year high of 3.5% in April, well exceeding the BOJ's 2% target, due to surging food prices.
"We still think that the Japanese economy is unlikely to slip into recession even if Trump tariffs cause it to slow," Nomura said in a research note last week, noting the economy is being driven by the service industry.
But Nomura added that pressure on the economy from the Trump tariffs is expected to intensify this summer. Ueda also said he expects the tariff impact to become clearer later this year.
"Given very high uncertainty, it's become even more important than in the past to look at a wide range of information" in setting policy, Ueda said.
($1 = 144.9100 yen)
(Reporting by Leika Kihara and Makiko Yamazaki; additional reporting by Kantaro Komiya, Satoshi Sugiyama and Rae Wee; Editing by Sam Holmes and Kim Coghill)
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