BoJ Review: One Percent
The BoJ hike rates by 25bps to 1% in the June meeting
As per preview, the BoJ hike rates to 1% in the June 16th meeting as underlying inflation is sustainably around target range with the help of stronger wage growth. It came at a time when Middle East's dust began to settle but the BoJ is already being optimistic beforehand. They believe corporate profit will be sufficient to cushion higher energy prices while government stimulus could help with private consumption.
They acknowledged the artificial compression of headline CPI from government stimulus and admitted the cost push pressure for Japanese business from oil is rising. They are expecting underlying CPI to also surpass 2% in upside risk scenario.
The market focus remain in bond purchase. Our forecast of a pause in the tapering in April 2027 was proven correct. Monthly purchase from then on will be at 2 trillion JPY monthly. While BoJ said long term JGB yields should be determined by market, it is evidentially they will try to not overstress the bond market. Like always, the BoJ will intervene if they see a spike that disrupts the bond market.
The forward guidance has a copy and paste message they want to send, hawkish. But in reality, we believe 1% will be terminal rate, at least before the next spring wage negotiation in March 2027, when if wage traction continues, could see rate to 1.5%.