Japan: Review of the Bank of Japan’s January Monetary Policy Decision Meeting

■ The Bank of Japan did not explicitly hint at a near-term interest rate hike, but maintained its stance of continuing to push forward with additional interest rate hikes.  

■ The yen weakened before the Bank of Japan governor's press conference, but strengthened as vigilance against coordinated intervention by Japan and the United States intensified. 
 
From January 22 to 23, the Bank of Japan (hereinafter referred to as "BOJ") held a monetary policy decision meeting (hereinafter referred to as "the Policy Meeting"). As expected by the market, the Bank of Japan maintained the policy rate—the unsecured overnight call rate—at 0.75%. The main focus of this meeting was on three aspects: (1) whether to propose an interest rate hike; (2) the assessment of the economic and inflation outlook in the "Economic and Price Outlook Report"; and (3) the press conference of BOJ Governor Kazuo Ueda. In conclusion, the Bank of Japan did not specifically hint at a near-term interest rate hike, but it can be confirmed that its stance of continuing to push forward with additional interest rate hikes has been maintained. 

 
The following is an explanation of the above three points. (1) Deliberative committee member Takada proposed a 0.25 percentage point interest rate hike because "the price stability target has been largely achieved". (2) According to the median forecasts from the policy committee, regarding inflation expectations, the core CPI excluding fresh food was revised upward from 1.8% to 1.9% in fiscal year 2026; the core CPI excluding fresh food and energy was revised upward from 2.8% to 3.0% in fiscal year 2025, from 2.0% to 2.2% in fiscal year 2026, and from 2.0% to 2.1% in fiscal year 2027. Regarding economic growth expectations, fiscal years 2025 and 2026 were revised upward, while fiscal year 2027 was revised downward. The risk balance between economic conditions and prices was adjusted from the previous statement to "upward and downward equilibrium". (3) Regarding the impact of yen depreciation on trend inflation through import prices, the Bank of Japan maintained its previous consistent view. Regarding the recent trend in Japanese government bond yields, the governor stated that "yields have risen relatively quickly," but also pointed out that "liquidity in the ultra-long-term government bond market is low at the end of the fiscal year," and emphasized "the hope to maintain cooperation with the government to address this," while being relatively restrained in mentioning temporary government bond purchases. Against this backdrop, the USD/JPY exchange rate traded in the latter half of the 158-yen range in the foreign exchange market, briefly rising to just over 159 yen during Governor Ueda's press conference. 
 
It should be noted that the significant appreciation of the yen occurred after Governor Ueda's press conference and during the afternoon US trading session that day. Particularly during the latter session, rumors circulated that the New York Federal Reserve, acting as an agent of the US Treasury, conducted a "rate check," considered a prelude to actual intervention. It is extremely rare for US authorities to conduct a "rate check" on the yen exchange rate, leading the foreign exchange market to pay close attention to potential coordinated action by the Japanese and US authorities. Given the rising yields in Japanese government bonds and the expected continued downward pressure on the yen, Governor Ueda stated that he would maintain close cooperation with the government, while clearly defining the division of responsibilities between the government and the central bank. The Japanese financial market continues to attract close attention from global investors, including regarding the actions of the Japanese authorities.