Bank of Japan and the US: Bank of Japan Meeting, FOMC Commentary

■ The Bank of Japan's vigilance against inflation has clearly intensified, and market expectations for a June rate hike have risen.  

■ Even if the Federal Reserve Chairman changes, the possibility of a significant change in the current policy stance in the short term remains low. 
 
The Bank of Japan's monetary policy meeting held on the 27th and 28th decided to keep the policy rate unchanged at 0.75%. The statement pointed out that against the backdrop of tensions in the Middle East, there are downside risks to the economic outlook, while there are upside risks to the inflation outlook. Considering the following two points: (1) Due to vigilance against rising inflation, 3 votes were against keeping the interest rate unchanged and advocated for a rate hike; (2) In the Economic and Price Outlook Report, the expected year-on-year growth rate of core CPI excluding fresh food and energy was significantly revised upward - from 2.2% to 2.6% in fiscal year 2026 and from 2.1% to 2.6% in fiscal year 2027. It can be considered that the Bank of Japan's vigilance against rising inflation has clearly intensified. Of particular note is the central bank's high regard for the "secondary effect" risk that the high price of crude oil may push up raw material costs and broadly raise commodity prices through the cost transmission mechanism. Although the forecast for real GDP growth in fiscal year 2026 was lowered to 0.5% from 1.0% in January, given that the Bank of Japan's estimated potential growth rate is only a few tenths of a percent, the uncertainty brought about by the Middle East situation, while potentially dragging down the economy, is not enough to significantly increase concerns about "difficulty in raising interest rates due to economic slowdown." Therefore, the market generally believes that the probability of the Bank of Japan raising interest rates at its June meeting is increasing. 

 
The Federal Reserve (FRB) decided to maintain the policy rate at the 3.50%-3.75% range at its Federal Open Market Committee (FOMC) meeting held on the 28th and 29th. The statement noted that U.S. economic activity continues to expand at a solid pace, but the economic outlook remains highly uncertain due to factors such as the situation in the Middle East. Four votes were cast against the rate cut, with one advocating for it to be lowered and the other three agreeing to maintain the rate but opposing the inclusion of dovish language in the statement. Coupled with Fed Chairman Powell's statement that the current policy rate is at an appropriate level, the market interpreted this meeting as a cooling of expectations for a rate cut in the short term. 

 
Furthermore, Powell stated that he plans to remain on the board of governors temporarily after his term as chairman ends to address potential political pressure that could undermine the Fed's independence. He emphasized that he has no intention of becoming a "shadow chairman," but rather to support the next chairman, Warsh, in a low-key manner. Warsh's Senate confirmation process is underway, and he is expected to officially take office on May 15. At his hearing on April 21, Warsh stated that productivity gains from artificial intelligence (AI) could help curb inflation, but this assessment remains at a medium- to long-term potential level. He also stressed that the Fed's independence is crucial, and maintaining low inflation is key to ensuring that independence. With current policy rates already close to the neutral level, the Fed is unlikely to rush into rate cuts unless employment deteriorates significantly; therefore, the likelihood of a significant shift in current policy direction in the short term is low.