BoJ Review: Hawkish Hold

The BoJ has kept rates unchanged at 0.75% in the April meeting with three votes dissent that is looking for another 25bps hike. There hasn't been any changes to BoJ's stance of more hike but the geopolitical tension in Middle East may have a temporary negative effect on wage growth in Q2. It led the BoJ to revise their economic forecast for 2026 lower before rebounding in 2027. Inflation forecast is revised higher to 2.5-3% in 2026 before rotating lower in 2027 and reaching target at 2028. 

The geopolitical disruption is unlikely to derail BoJ's plan to further tighten as the business wage/price setting momentum has gained traction. Their major concern lies on short term wage growth slowdown on lower business margin. Their 2026 GDP forecast is halved from January forecast of 1%. Core CPI0.9% higher while core-core CPI 0.4% higher than earlier expectation. 

We suspect Ueda will sound more hawkish than usual in his press conference with no change in forward guidance. They are assessing the situation in Middle East and should hike as early as in the June meeting if energy disruption is eased.