BoJ Meeting and FOMC Outlook
2025-06-17
■ The Bank of Japan is expected to keep the policy rate unchanged at the meeting. Attention will be given to the trend of the reduction plan for government bond purchases.
■ The FOMC may also keep the policy rate unchanged. It is anticipated that the changes in the economic forecast (SEP) will be clarified.
The monetary policy decision-making meetings of Japan and the United States will take place this week. The Bank of Japan's financial policy decision-making meeting will be held on June 16-17. Suppose the economy and prices move as expected. In that case, the Bank of Japan is likely to maintain its interest rate hike stance while remaining cautious about the uncertainties arising from the US government's tariff policy, opting to keep the policy rate at 0.50%. At this meeting, considering the widening volatility of ultra-long government bond yields, the market is focused on the mid-term review of the current government bond purchase plan, which extends until March 2026, and the next phase of policy guidelines following April 2026. The Bank of Japan decided at its meeting in July 2024 to reduce the monthly purchase of long-term government bonds by approximately 400 billion yen each quarter. If this proceeds as planned, the monthly government bond purchase rate will decline from around 5.3 trillion yen in August-September 2024 to about 2.9 trillion yen in January-March 2026. During the mid-term review, if deemed necessary, the plan may be revised as one option. However, based on the statements from senior Bank of Japan officials, the current plan is expected to be upheld. For the next phase of policy, the market generally anticipates that the purchase amount will decrease by about 200 billion yen per quarter, with the reduction measures stopping once the monthly purchase slows to around 2 trillion yen. Observers will closely monitor whether this reduction plan triggers a decline in government bond yields.
Additionally, the Federal Open Market Committee (FOMC) of the United States will meet on June 17-18. The policy rate is expected to remain unchanged, and the market is focused on the content of the FOMC members' economic projections (SEP), which are updated quarterly. According to the minutes from the FOMC meeting held on May 6-7, nearly all members noted the risk of higher-than-expected inflation and sustained high levels. It is anticipated that the economic growth forecast will be lowered, while both the unemployment rate and inflation forecasts will be raised. Given that the financial market has already factored in expectations for a 0.25% interest rate cut in September and October, the maintenance of the expectation of two rate cuts this year, as depicted in the March SEP, is receiving significant attention. However, several senior Federal Reserve (FRB) officials recently highlighted the high uncertainty posed by the US government's tariff policy, suggesting that the credibility of the SEP is currently lower than usual.
Furthermore, Israel and Iran have initiated offensives against one another, raising tensions in the Middle East. Typically, financial market fluctuations caused by geopolitical risks are short-term; however, the US-Iran nuclear talks, originally scheduled for the 15th, have been canceled, and Iranian officials have declared their unwillingness to participate in ceasefire negotiations during the conflict, complicating the potential for dialogue to ease tensions in the short term. Moreover, Israel has broadened its targets of attack from nuclear and military sites to oil and gas production facilities. Alongside the US government's tariff policy, escalating geopolitical risks have heightened uncertainty. Although it is premature to determine any potential impact on monetary policy, financial markets may become increasingly anxious about the possibility of an economic slowdown and rising inflationary pressures due to increasing energy prices.
■ The FOMC may also keep the policy rate unchanged. It is anticipated that the changes in the economic forecast (SEP) will be clarified.
The monetary policy decision-making meetings of Japan and the United States will take place this week. The Bank of Japan's financial policy decision-making meeting will be held on June 16-17. Suppose the economy and prices move as expected. In that case, the Bank of Japan is likely to maintain its interest rate hike stance while remaining cautious about the uncertainties arising from the US government's tariff policy, opting to keep the policy rate at 0.50%. At this meeting, considering the widening volatility of ultra-long government bond yields, the market is focused on the mid-term review of the current government bond purchase plan, which extends until March 2026, and the next phase of policy guidelines following April 2026. The Bank of Japan decided at its meeting in July 2024 to reduce the monthly purchase of long-term government bonds by approximately 400 billion yen each quarter. If this proceeds as planned, the monthly government bond purchase rate will decline from around 5.3 trillion yen in August-September 2024 to about 2.9 trillion yen in January-March 2026. During the mid-term review, if deemed necessary, the plan may be revised as one option. However, based on the statements from senior Bank of Japan officials, the current plan is expected to be upheld. For the next phase of policy, the market generally anticipates that the purchase amount will decrease by about 200 billion yen per quarter, with the reduction measures stopping once the monthly purchase slows to around 2 trillion yen. Observers will closely monitor whether this reduction plan triggers a decline in government bond yields.
Additionally, the Federal Open Market Committee (FOMC) of the United States will meet on June 17-18. The policy rate is expected to remain unchanged, and the market is focused on the content of the FOMC members' economic projections (SEP), which are updated quarterly. According to the minutes from the FOMC meeting held on May 6-7, nearly all members noted the risk of higher-than-expected inflation and sustained high levels. It is anticipated that the economic growth forecast will be lowered, while both the unemployment rate and inflation forecasts will be raised. Given that the financial market has already factored in expectations for a 0.25% interest rate cut in September and October, the maintenance of the expectation of two rate cuts this year, as depicted in the March SEP, is receiving significant attention. However, several senior Federal Reserve (FRB) officials recently highlighted the high uncertainty posed by the US government's tariff policy, suggesting that the credibility of the SEP is currently lower than usual.
Furthermore, Israel and Iran have initiated offensives against one another, raising tensions in the Middle East. Typically, financial market fluctuations caused by geopolitical risks are short-term; however, the US-Iran nuclear talks, originally scheduled for the 15th, have been canceled, and Iranian officials have declared their unwillingness to participate in ceasefire negotiations during the conflict, complicating the potential for dialogue to ease tensions in the short term. Moreover, Israel has broadened its targets of attack from nuclear and military sites to oil and gas production facilities. Alongside the US government's tariff policy, escalating geopolitical risks have heightened uncertainty. Although it is premature to determine any potential impact on monetary policy, financial markets may become increasingly anxious about the possibility of an economic slowdown and rising inflationary pressures due to increasing energy prices.