April 28 (Reuters) – The Bank of Japan kept interest rates steady on Tuesday, but three of the nine-member board proposed hiking borrowing costs, signalling policymakers’ concerns over inflationary pressures from the Middle East conflict.
The U.S.-Israeli war with Iran has complicated the BOJ’s efforts to gradually raise still-low interest rates to levels deemed neutral for the economy, seen by markets at around 1.5%.
As widely expected, the central bank left unchanged its short-term policy rate at 0.75% in a two-day meeting that ended on Tuesday. Board members Hajime Takata, Naoki Tamura, and Junko Nakagawa dissented from the decision, instead calling for a hike to 1.0%.
Markets are focusing on Governor Kazuo Ueda’s media briefing later in the day for clues on how the protracted Iran war is affecting the Bank of Japan’s rate-hike path.
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SIM MOH SIONG, STRATEGIST, OCBC, SINGAPORE:
“The read here is that it’s a hawkish hold. The three dissenters send a signal that the Bank of Japan could have hiked this time if not for the war… it looks like June could be the next live date in terms of rate hikes, but we’ll need to see what Ueda says this afternoon in his press briefing, because he has been a bit of a dampener in terms of the rate hike this time round.”
“(The risk of a yen intervention) is still there. We’re treading on very thin ice here, where I think the market wants to believe in a hawkish hold, but the fact is that it’s still a hold in itself. And the intervention risk is the main backstop in the event Ueda sounds dovish at the press briefing.”
KIERAN WILLIAMS, HEAD OF ASIA FX, INTOUCH CAPITAL MARKETS, LONDON:
“The hold itself was as expected, but the 6-3 vote split (vs 8-1 in March) and the rewritten forward guidance flagging the Bank “will continue to raise the policy interest rate,” reads as a hawkish hold setting up a June move, especially with FY2026 core CPI lifted to 2.8% from 1.9%. The dissent from Nakagawa, who surprised markets given her reputation as one of the more dovish board members, suggests the hawkish shift could run deeper than the headline split implies.”
“The water is somewhat muddied by the fact that her term ends on June 29, with replacement Ayano Sato seen as materially more dovish, meaning the June 16 meeting is effectively her last window to vote for a hike. USD/JPY has drifted lower on the announcement; the next leg will depend on Governor Ueda’s presser.”
KANAKO NAKAMURA, ECONOMIST, DAIWA INSTITUTE OF RESEARCH, TOKYO:
“The yen’s move higher after the BOJ decision reflected the fact that three board members dissented this time. I was also surprised by a larger-than-expected upward revision to the fiscal 2026 inflation forecast, which factored in broader pass‑through effects from higher crude oil prices.”
“I expect the next rate hike to come as early as June. With spring wage talks likely to deliver pay rises on par with last year, the wage‑price cycle points to higher inflation ahead. While uncertainty over the Middle East remains high, ignoring upward price pressures could exacerbate side effects such as yen weakness.”
KAZUAKI SHIMADA, CHIEF STRATEGIST, IWAICOSMO SECURITIES, TOKYO:
“The outcome of the BOJ policy meeting was a bit hawkish, with three board members dissenting from the decision, not two. That weighed on investor sentiment as they braced for an interest rate hike in June.”
“But the Nikkei’s decline today was driven by Advantest and SoftBank Group. Given their fast-pitched rally in the recent sessions, the Nikkei’s decline after the BOJ’s decision is an appropriate adjustment to the sharp gains of the index.”
SAKTIANDI SUPAAT, REGIONAL HEAD OF FX RESEARCH AND STRATEGY, GLOBAL MARKETS, MAYBANK, SINGAPORE:
“Governor (Ueda’s) comments would be important, whether that could actually lead to a sharp move (in the yen) either way. The possibility of an intervention probably depends on what his comments are, but my sense is that (his comments) would be neutral. I think the balance of risks to growth and inflation is the key signal.”
OLIVIER D’ASSIER, LEAD PRINCIPAL OF INVESTMENT DECISION RESEARCH, APAC, SIMCORP, SINGAPORE:
“What investors want to see is a commitment to policy normalization, a controlled withdrawal from suppression of long‑dated JGB yields.”
“If the BOJ continues its bond-buying operation, it will lose policy credibility. Investors will sell their JGBs to investors, then sell the yen to invest elsewhere. The BOJ might have to spend even more money defending the yen as it crosses 160. This is throwing good money after bad.”
CHARU CHANANA, CHIEF INVESTMENT STRATEGIST, SAXO, SINGAPORE:
“The BOJ decision was not a surprise on the headline, but the statement and vote split were more hawkish than the market would have liked. The 6–3 vote split and the stronger language on future policy adjustment suggest the bar for another hike may be falling.”
“The key message is that the BOJ is no longer simply waiting for inflation to become sustainable. It is increasingly acknowledged that upside price risks are building, especially as higher oil prices and import costs complicate Japan’s inflation outlook. “
“For the yen, this should provide some near-term support, but it may not be enough to trigger a durable reversal unless Ueda sounds clearly hawkish at the press conference. USD/JPY near 160 remains a major pressure point. Intervention risk may cap aggressive yen shorts, but a sustained yen recovery will need clearer evidence that the BOJ is prepared to keep tightening despite external uncertainty.”
BEN BENNETT, HEAD OF ASIA INVESTMENT STRATEGY, L&G ASSET MANAGEMENT, HONG KONG:
“Given the geopolitical uncertainty, it’s not surprising that the BOJ decided to wait and see. They highlight the twin issues – upside risks to inflation and downside risks to growth. But there’s a clear bias to hike rates in the future as signalled by the three dissenters. This hawkish bias should help support the yen, which has been bouncing around the 160 support for a few weeks now.”
MASATO KOIKE, SENIOR ECONOMIST, SOMPO INSTITUTE PLUS, TOKYO:
“If anything, given that tensions in the Middle East have not yet subsided, I thought there was a possibility the tone might be a bit more subdued this time. But with the decision coming in at 6–3, we got what looks, on the surface at least, like a shift in a more hawkish direction. So in that sense, although we still need to wait for Governor Ueda’s press conference, based on the information we have right now, I think it does suggest that the BOJ is leaning more toward a rate hike and becoming more forward-leaning.”
“As for what to watch in the press conference, I’ll be focusing on how strong a stance they take on rate hikes. With both June and July being seen as possible timing, the key question is whether there will be any indication of a hike as early as June.”
“If they don’t show a clear willingness to raise rates, the risk increases significantly that the yen could weaken sharply. So the key point is how much of a hint they can give about a rate hike, and whether they can send an explicit message on that front.”
KHOON GOH, HEAD OF ASIA RESEARCH, ANZ, SINGAPORE:
“I think the three dissenters highlight the balancing act that the BOJ is facing… the three dissenters clearly indicate that the near-term direction of rates in Japan is still higher, and I think this will get the market to focus on the next meeting, where the chances of a hike will probably increase.”
“Part of that is also not only because inflation in Japan obviously is going to be higher, but also the ongoing weakness in the yen, I think, is also another policy consideration as well.”
“I think the BOJ has been talking about the process of normalisation and trying to find out where the new neutral rate is, but it is not easy. But if you look at the simple fact, Japan is really out of deflation… it probably requires more than one rate hike for policy normalisation, particularly if they are really serious about wanting to arrest the weakness in the yen.”
TAKASHI FUJIWARA, CHIEF FUND MANAGER AT RESONA ASSET MANAGEMENT’S FIXED INCOME INVESTMENT DIVISION, TOKYO:
“The BOJ’s economic growth forecast for 2026 is lower than that of the IMF (International Monetary Fund). If the IMF’s forecast is achieved, the BOJ may revise its forecast. That may make it easier for the BOJ to increase interest rates.”
FRED NEUMANN, CHIEF ASIA ECONOMIST, HSBC, HONG KONG:
“A close call for the BOJ. While the Bank of Japan kept rates on hold, the three dissenting votes highlight the tensions monetary officials face.”
“Monetary officials in Japan are not alone in facing the dilemma whether to tighten policy into an energy price shock that is simultaneously inflationary and growth destructive.”
“Still, today’s message from the Bank of Japan is that it remains poised to tighten policy sooner than later. The Bank of Japan will not be able to hold out for too long before tightening policy again, even if the spike in energy costs will take its inevitable toll on growth.”
TOHRU SASAKI, CHIEF STRATEGIST, FUKUOKA FINANCIAL GROUP AND FORMER BOJ OFFICIAL, TOKYO:
“I think that’s the reason behind the yen appreciation right now: the three dissenters. The focus is on the CPI, and the inflation forecast has been revised up by the majority. So I think that’s also another reason to see this decision as kind of hawkish.”
“One of the three dissenters, Nakagawa, whose term will expire in June, will be replaced by a very dovish person. So it could be a last chance to see the three dissenters. But three is the three, so I think it’s a hawkish result.”
BART WAKABAYASHI, BRANCH MANAGER, STATE STREET, TOKYO:
“We’re seeing higher inflation on our indicators. I’m not surprised (they held), but I would not have been surprised if they hiked. They want to avoid shocking the market, and the expectations were for no change. “There’s consensus that they need to do a hike next time. That’s pretty much written in stone, as far as we can predict this far out – get it to 1% and then they’re done.”
HIROFUMI SUZUKI, CHIEF FX STRATEGIST, SMBC, TOKYO:
“It was somewhat surprising that three votes were cast in favour of a rate hike, with Board Member Nakagawa also shifting to support an increase.”
“In Japan, it is already concerning that the impact is beginning to show up in consumer sentiment, and it is likely to feed through to prices going forward. At the same time, depreciation pressure on the yen persists in financial markets. Taken together, the BOJ will have little choice but to maintain its bias toward rate hikes.”
“If it can be confirmed that the situation in the Middle East has improved to some extent, an additional rate hike is expected around June-July.”
(Reporting by Reuters Asia markets team; Editing by Rashmi Aich)
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