The rate decision is very much expected at this point, with several sources already “leaking” the matter to markets. And so far, market pricing is very much in tune with that as traders are pricing in ~84% odds of a rate hike. As a reminder, the BOJ will announce their latest decision next week on 16 June.
Besides that, the Nikkei report also reveals that the BOJ is considering to put a stop to its bond tapering programme. And that such a decision could come into effect starting from April 2027.
That also rebuffs recent speculation on the tapering halt, with expectations that it will take place when the next fiscal year begins. The sources also note that the BOJ is considering to maintain the current pace of bond buying beyond the next fiscal year.
For some context, the sudden surge in Japanese bond yields from the Middle East conflict is really presenting a dilemma for the BOJ. And adding to that is the further strain on government finances, also directly impacted by the conflict.
And with a rate hike (maybe more as well?) to follow, policymakers don’t want to risk doing too much in shocking the economy. So, a pause here will allow a cleaner separation of letting each policy tool have its intended effect. In this case, the pause is very much needed to stabilise the conditions in the bond market. That especially at a time of where the outlook is relatively fragile and vulnerable.
