Review of the Bank of Japan’s June Financial Policy Meeting
2025-06-19
■ The Bank of Japan maintains its current policy of reducing government bond purchases while deciding to slow the pace of reductions starting in April 2026.
■ President Ueda continued to assess the situation in the May Outlook Report and indicated that he would keep paying attention to the development of hard data.
At the Bank of Japan's monetary policy decision meeting held on June 16-17, the policy rate remained at 0.5%. This outcome was consistent with market expectations, as the previous meeting on April 30-May 1 highlighted the uncertainty surrounding US tariff policy and suggested that a cautious stance on rate hikes would continue in the short term. The assessment of the economy and prices in the meeting statement remained largely unchanged.
The focus of this meeting was to conduct a mid-term review of the current plan to reduce government bond purchases until March 2026 and announce the policy for after April 2026. In light of the increasing volatility of super-long government bond yields since early April, the Bank of Japan upheld its original plan to cut the amount by 400 billion yen per quarter and decided to halve the pace of reduction to 200 billion yen from April 2026 to March 2027. Following the previous large-scale purchases of government bonds, the proportion of long-term government bonds held by the Bank of Japan in the outstanding balance of issuance exceeded half, reaching 52% by the end of 2024. The Bank of Japan began to reduce its bond purchases in August 2024. To restore the function of the government bond market, it is necessary to continue promoting measures to lower the balance of government bonds. However, if normalization is pursued on a large scale at once, it may lead to an increase in long-term and ultra-long-term interest rates, disrupting the market. Therefore, it was decided to slow the pace of reduction to ensure the future stability of the government bond market. Additionally, the minutes from the "Bond Market Participants Meeting" held on May 20-21 revealed that market participants were also highly concerned about the level at which the reduction measures would be halted, but the ultimate goal of the reduction was not explicitly stated this time. If it proceeds as planned, government bond purchases will total 5.7 trillion yen per month from July 2024 before the reduction begins, decreasing to approximately 2 trillion yen per month from January to March 2027. The government bonds held by the Bank of Japan are expected to decrease by about 16-17% compared to the levels before the reduction started. However, no proposals for government bond purchases after April 2027 were put forward at this time, and another mid-term evaluation and discussion are scheduled for the decision-making meeting in June 2026.
At President Ueda's press conference, while the policy of raising interest rates was maintained, he emphasized the high uncertainty of the future and did not specify the timing or conditions for any additional rate hikes. President Ueda reiterated the assessment from the May Outlook Report, stating that there were no significant changes at this time. In response to questions about the current tariff policy's impact and the likelihood of a near-term rate hike, he mentioned that he "wants to observe changes in hard data in the future" and believed the current basic price increase rate is still slightly below 2%, indicating there is no risk of monetary policy lagging behind the curve. Based on these comments, the Bank of Japan's cautious approach may persist in the near future, with the next rate hike still likely to occur between October and December.
■ President Ueda continued to assess the situation in the May Outlook Report and indicated that he would keep paying attention to the development of hard data.
At the Bank of Japan's monetary policy decision meeting held on June 16-17, the policy rate remained at 0.5%. This outcome was consistent with market expectations, as the previous meeting on April 30-May 1 highlighted the uncertainty surrounding US tariff policy and suggested that a cautious stance on rate hikes would continue in the short term. The assessment of the economy and prices in the meeting statement remained largely unchanged.
The focus of this meeting was to conduct a mid-term review of the current plan to reduce government bond purchases until March 2026 and announce the policy for after April 2026. In light of the increasing volatility of super-long government bond yields since early April, the Bank of Japan upheld its original plan to cut the amount by 400 billion yen per quarter and decided to halve the pace of reduction to 200 billion yen from April 2026 to March 2027. Following the previous large-scale purchases of government bonds, the proportion of long-term government bonds held by the Bank of Japan in the outstanding balance of issuance exceeded half, reaching 52% by the end of 2024. The Bank of Japan began to reduce its bond purchases in August 2024. To restore the function of the government bond market, it is necessary to continue promoting measures to lower the balance of government bonds. However, if normalization is pursued on a large scale at once, it may lead to an increase in long-term and ultra-long-term interest rates, disrupting the market. Therefore, it was decided to slow the pace of reduction to ensure the future stability of the government bond market. Additionally, the minutes from the "Bond Market Participants Meeting" held on May 20-21 revealed that market participants were also highly concerned about the level at which the reduction measures would be halted, but the ultimate goal of the reduction was not explicitly stated this time. If it proceeds as planned, government bond purchases will total 5.7 trillion yen per month from July 2024 before the reduction begins, decreasing to approximately 2 trillion yen per month from January to March 2027. The government bonds held by the Bank of Japan are expected to decrease by about 16-17% compared to the levels before the reduction started. However, no proposals for government bond purchases after April 2027 were put forward at this time, and another mid-term evaluation and discussion are scheduled for the decision-making meeting in June 2026.
At President Ueda's press conference, while the policy of raising interest rates was maintained, he emphasized the high uncertainty of the future and did not specify the timing or conditions for any additional rate hikes. President Ueda reiterated the assessment from the May Outlook Report, stating that there were no significant changes at this time. In response to questions about the current tariff policy's impact and the likelihood of a near-term rate hike, he mentioned that he "wants to observe changes in hard data in the future" and believed the current basic price increase rate is still slightly below 2%, indicating there is no risk of monetary policy lagging behind the curve. Based on these comments, the Bank of Japan's cautious approach may persist in the near future, with the next rate hike still likely to occur between October and December.