The Bank of Japan (BOJ) decided to keep its benchmark interest rate unchanged at 0.75% on April 28, 2026, marking a pause in its rate hike cycle as ongoing Middle East conflict clouds the economic outlook [1]. The decision was reached in a 6-3 vote, representing the most divided Policy Board under Governor Kazuo Ueda’s tenure [1]. Three members—Nakagawa, Takata, and Tamura—dissented, advocating for an immediate hike to 1.0% due to perceived upside risks to prices amid still-accommodative financial conditions [1].
The BOJ also revised its economic projections, slashing its growth forecast for the current fiscal year by half to 0.5% and raising its core inflation forecast to 2.8%, which is above expectations [1]. Governor Ueda acknowledged a significant decline in confidence regarding the bank’s baseline economic outlook, stating, “the certainty of meeting our baseline outlook has declined quite significantly this time” [1].
In its policy statement, the BOJ emphasized it will closely monitor the impact of the Middle East situation on financial and foreign exchange markets, as well as on Japan’s economic activity and prices [1]. The bank also adjusted its forward guidance, replacing the word “improvement” with “developments” when describing conditions for future hikes, signaling a potential willingness to raise rates even if growth slows, provided inflation risks persist [1].
Market expectations for a rate hike at the BOJ’s June 16 meeting stand at 66% in overnight swap markets [1]. Governor Ueda did not rule out a June hike, noting, “I believe there is a possibility that we could raise interest rates” if price risks worsen and a major economic downturn is avoided [1]. The divided vote and cautious forward guidance reflect a challenging policy environment, with the BOJ balancing supply shocks and inflation risks [1].
CONCLUSION
The BOJ’s decision to hold rates at 0.75% amid a deeply split vote and downgraded growth outlook signals heightened uncertainty for Japan’s monetary policy. With inflation risks elevated and market odds favoring a June hike, investors are bracing for potential policy shifts depending on economic and geopolitical developments.