The Bank of Japan raised interest rates today to their highest level in 31 years. The 25 bp hike means the reference rate has increased to 1%. The decision was widely expected, so investors focused on information regarding quantitative tightening and the press conference concluding the meeting. Due to the hospitalization of Governor Ueda, Deputy Governor Uchida, known for his direct speaking style, took the podium today.
Figure 1: Interest rates and bond yields in Japan (1994 - 2026)
Source: XTB Research, 16.06.2026
Uchida highlighted inflation risks, stating directly that due to elevated inflation expectations, there is a risk of the core measure breaking above the bank's target again. He also announced that the bank will continue to raise rates. However, this was not enough to satisfy investors who were looking for clear signals indicating another rate hike as early as the third quarter.
It is also significant that the decision was not unanimous, although it is worth noting that the only member who voted against the upward move - Toichiro Asada - was appointed to the committee by Prime Minister Takaichi, a vocal supporter of looser monetary policy.
We also received information about halting the reduction of domestic government bond purchases at a level of 2 trillion yen per month, i.e. approx. 12.5 billion dollars. However, this will happen with a delay - the end of the program is scheduled for April 2027. This constitutes a dovish balance to the bank's other actions.
The entire package offered by the BoJ can be considered relatively balanced, although most likely insufficient to prevent further depreciation of the yen. The USDJPY exchange rate is rising again, approaching the peak established in July 2024 (161.95). If it manages to break through it, it will reach levels not seen in over 40 years. We can expect that the BoJ will try to counteract this, although its previous attempts at intervention have not been the most successful.
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Michał Jóźwiak, Financial Markets Analyst at XTB
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