On April 28, the Bank of Japan (BOJ) decided to stand pat at its latest monetary policy meeting, maintaining the existing benchmark interest rate stable. At the same time, it sharply raised inflation expectations and significantly lowered its economic growth forecast, highlighting the central bank's cautious judgment on the current economic situation.
At this policy meeting, three committee members—Hiroshi Takada, Naoki Tamura, and Junko Nakagawa—jointly proposed raising the short-term interest rate target from 0.75% to 1.0%. However, the proposal was rejected by a majority of committee members, and the benchmark interest rate remained unchanged at 0.75% with a voting ratio of 6-3.
Meanwhile, the Bank of Japan sharply raised its medium-term inflation forecast and drastically cut its 2026 fiscal year real GDP growth forecast from 1.0% to 0.5%. This adjustment clearly reflects the central bank's obvious concern about the insufficient resilience of the Japanese economy under the impact of high oil prices.
The Bank of Japan reaffirmed that it will continue to promote the process of interest rate hikes in accordance with the developments in the economy, prices, and financial markets. It also stated that it is necessary to closely monitor the transmission impact of the Middle East situation on the economy and prices, and prudently assess the timing and pace of policy adjustments. Currently, Japan's real interest rate is still at an extremely low level, and the overall monetary policy stance remains accommodative.
After the interest rate decision was announced, the financial market responded immediately. The yen continued to rise against the US dollar, once breaking through the 159 level, and Japan's 10-year government bond futures fell 0.17 points intraday to close at 129.53.
Bloomberg Economics published an analysis stating that the Bank of Japan kept interest rates unchanged on Tuesday, mainly due to the government's opposition to tightening monetary policy. However, judging from the policy orientation, the central bank seems to be prepared to raise interest rates in June. Next, the market's focus will be on how BOJ Governor Kazuo Ueda balances various risk factors at the press conference. The market expects that he will temper the hawkish stance shown in March and avoid using rhetoric that implies a clear interest rate hike path to avoid policy conflicts with the government.
Three Committee Members Proposed a Rate Hike, Which Was Rejected by a Majority Vote
The key divergence at this BOJ policy meeting lies in the obvious differences between hawkish committee members and mainstream members in judging the timing of interest rate hikes, with hawkish members clearly expressing a more aggressive stance on raising interest rates.
Committee member Junko Nakagawa pointed out that although the Middle East situation remains uncertain, combined with the current state of Japan's economic development, under the current accommodative financial environment, the risk of upward price movement is significantly greater than the downside risk.
Committee member Hiroshi Takada stated that Japan's price stability target has basically been achieved. Affected by the second-round effect of price increases triggered by overseas situations, the upward pressure on Japan's prices continues to increase, and the price risk is also skewed to the upside.
Based on the above judgments, the three hawkish committee members jointly proposed raising the policy rate by 25 basis points to 1.0%, but the proposal ultimately failed to gain the support of a majority of committee members and was rejected.
Relevant analyses point out that this move indicates that there are still obvious differences within the Bank of Japan regarding the timing and conditions for raising interest rates, and the mainstream opinion tends to adopt a wait-and-see attitude before external uncertainties dissipate, and is not in a hurry to tighten monetary policy.
Bloomberg Economics' article further pointed out that in this vote, the number of policy committee members opposing the maintenance of interest rates increased by two compared with the previous time. Among the nine committee members, a total of three voted in favor of raising interest rates. In addition, affected by the surge in international oil prices, the Bank of Japan also sharply raised its inflation expectations.
The article also noted that the market still expects the Bank of Japan to raise interest rates to 1.0% in June, but this expectation is not set in stone. Given that the independence of the Bank of Japan is facing pressure from the pro-stimulus government led by Prime Minister Sanae Takaichi, coupled with the continued turmoil in the Middle East, this pressure has prompted the Bank of Japan to soften the hawkish stance shown in March.
Inflation Expectations Sharply Raised, Price Pressure Persists
In terms of judging the inflation path, the Bank of Japan's latest forecast has been significantly revised upward compared with January, reflecting the central bank's attention to upward price pressure.
The central bank committee's median forecast for the 2026 fiscal year core-core CPI (i.e., the consumer price index excluding food and energy) was raised from +2.2% to +2.6%; the forecast for the 2027 fiscal year was also raised from +2.1% to +2.6%; and the forecast for the 2028 fiscal year was +2.2%.
The Bank of Japan stated that core consumer inflation is likely to accelerate gradually, and it is expected that inflation will converge to a level consistent with the 2% price target from the second half of the 2026 fiscal year to the 2027 fiscal year.
The central bank also emphasized that it is necessary to carefully examine whether core inflation can stabilize around the 2% target range, and pointed out that inflation expectations may continue to grow moderately, and upward price pressure will persist.
Growth Forecasts Sharply Lowered, External Risks Exert Pressure
In sharp contrast to the sharp upward revision of inflation expectations, the Bank of Japan's outlook for economic growth has obviously turned pessimistic, with significant downward revisions to economic growth forecasts for various fiscal years.
The central bank committee's median forecast for 2026 fiscal year real GDP growth was sharply lowered from +1.0% in January to +0.5%; the forecast for 2027 fiscal year was slightly lowered from +0.8% to +0.7%; and the forecast for 2028 fiscal year was +0.8%.
The Bank of Japan clearly pointed out that the risks to Japan's economic outlook are skewed to the downside. Among them, the rise in crude oil prices is expected to further reduce corporate profits and household real income. If oil prices remain high for longer than expected, Japan's economy may slow down further. However, the central bank also expects that as the adverse impact of high oil prices gradually fades, Japan's economic growth is expected to recover moderately starting from the 2027 fiscal year.
The central bank also specifically reminded that it is necessary to closely monitor the potential impact of the future direction of the Middle East situation on the global financial and foreign exchange markets, and warned that it is necessary to properly prevent the risk of inflation deviating significantly upward from the target from becoming a reality. In addition, the upward pressure on wages and prices may also exceed the level indicated by the current output gap.
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