We expect the BOJ to raise its policy rate (uncollateralized overnight call rate) from 0.75% to 1.00% at its Monetary Policy Meeting (MPM) on 15–16 June. We expect the BOJ to maintain its stance of continuing with rate hikes on the view that real interest rates are very low even as they approach the lower bound of the estimated neutral interest rate range. Given the rise in breakeven inflation (BEI) and persistent downward pressure on the yen, we think the BOJ might add a phrase emphasizing its commitment to price stability in a bid to win the market over. W.r.t Governor Ueda's press conference, we do not expect Governor Ueda to provide any specific views on the pace or conclusion of rate hikes (including the terminal rate). With the policy rate following the prospective rate hike (1.00%) close to the lower bound of the BOJ's estimated neutral rate range (1.1-2.5%), it will be interesting to see whether the BOJ maintains its view that real interest rates are very low. We think the BOJ is likely to announce at the June MPM that it will maintain its current plan for reducing JGB purchases (so-called tapering) through FY26 but stop tapering from April 2027 and leave monthly purchases unchanged at ¥2.1trn. From a market perspective, this week’s BOJ’s 25bps hike may not be hawkish enough for JPY. A stronger anti-inflation message could support JPY, while insufficient hawkishness would leave intervention risk around the 160–163 area in focus. We believe that Ueda might find it difficult to sound hawkish and hence JPY should test the June’24 highs of 162.25. USD/JPY also appears to have recently regained its correlation with the US-Japan 5yr interest rate differential, showing the significance of this week’s BOJ & FOMC decisions. Any MoF intervention might wait till 163-165 levels.
