––Governor Ueda, 74, Hospitalized for Medical Treatment, Working Remotely but Will Not Vote Next Week
–Board to Set Guideline for JGB purchases for Fiscal 2027; Focus on whether It Will Maintain Current Pace of Tapering by ¥200 billion a Quarter
By Max Sato
(MaceNews) – The Bank of Japan’s board is widely expected to decide to raise the target for the overnight interest rate to 1% from 0.75% in a unanimous or majority vote at its June 15-16 meeting amid growing upside risks to inflation triggered by the Mideast conflict. Governor Kazuo Ueda, who has hinted at an imminent rate hike in a recent speech, will miss the meeting for medical treatment.
It would be the bank’s first rate hike since December 2025, when the board unanimously decided to raise the policy rate by 25 basis points to a 30-year high after standing pat for nearly a year while waiting for the uncertainty created by protectionist U.S. trade policy to ease.
The board will also conduct its annual review on the pace of tapering the bank’s purchases of Japanese government bonds that was first decided in July 2024. It will set a guideline for its JGB purchase amounts for fiscal 2027 that ends in March 2028. The focus is on whether the bank will continue reducing JGB purchases by ¥200 billion a quarter, the same as now, as part of the process of unwinding its large-scale monetary easing that lasted for nearly a decade until March 2024.
In a May meeting with BOJ officials, many bond market participants urged the bank to maintain the current pace of reduction in order to improve market functions further while some argued that no more reduction in bond purchases would be necessary in fiscal 2027.
For the rest of fiscal 2026, the board is expected to maintain the June 2025 decision to reduce its JGB buying by about ¥200 billion a quarter so that the monthly purchase amount will fall to around ¥2.1 trillion in March 2027, down from ¥5.7 trillion in July 2024.
Ueda, 74, is expected to be hospitalized for “about two weeks” from June 9, when a liver cyst infection was found during a routine physical checkup, a BOJ official said Wednesday. “The governor has been working remotely to conduct necessary official duties but will miss the June 15-16 meeting for medical treatment,” he said but declined comment on Ueda’s physical conditions.
The governor will submit his opinions in writing but will not vote at the June meeting, the BOJ official said, adding that Ueda will attend the July 30-31 meeting in person.
Deputy Governor Ryozo Himino, a former commissioner of the Financial Services Agency, the government watchdog, will chair the June meeting. Deputy Governor Shinichi Uchida, a career central banker, will hold a post-meeting new conference in place of Ueda. Uchida, 63, returned to work full time on May 27 after having completed medical treatment of leukemia which was first found in November.
It will be the first time that the BOJ governor will miss a scheduled policy meeting. Masaaki Shirakawa, the then governor, was absent from an extraordinary meeting on European sovereign debt issues held on May 10, 2010 because he was attending a meeting of the Bank for International Settlements in Basel, Switzerland.
Governor Ueda used his June 3 speech to convey a message that he is shifting his focus more toward upside risks to inflation from downside risks to economic growth amid uncertainty over how long the Iran war will continue disrupting global economic activity.
While remaining mindful of downside risks to the economy, Ueda said, BOJ policymakers “need to be even more vigilant against the risk that inflation could rise significantly, as this could have adverse effects on the economy going forward.”
The bank’s baseline scenario is that if the tensions in the Middle East gradually ease and the underlying inflation rate gradually rises toward 2% amid moderate economic growth, the BOJ will continue adjusting interest rates higher, Ueda said, repeating the official line.
“But even if the outlook remains uncertain, if we determine that the risk of inflation rising exceeds the risk of the economy weakening, we believe it is necessary to thoroughly discuss whether to raise interest rates,” he said.
At its last meeting on April 27-28, the BOJ’s nine-member board decided in a 6 to 3 vote to leave the target for the overnight interest at 0.75% after leaving it unchanged in an 8 to 1 vote at its previous meetings in March and January. This shows the voices calling for a follow-up rate hike among the board have become louder. Underlying CPI inflation is approaching the bank’s 2% target and firms’ behavior is shifting more toward raising wages and prices as elevated global energy and commodities prices triggered by the Iran war lead to markups for a wider range of goods and services.
Board member Hajime Takata, formerly with Mizuho Securities, called for a rate increase to 1.0% for the third meeting in a row, arguing that the bank’s 2% inflation target has been “largely achieved” and that Japan’s inflation risks are “skewed to the upside due to second-round effects of price rises stemming from overseas developments.” Naoki Tamura, who came from the Sumitomo Mitsui banking group, rejoined Takata in calling for a 25 basis point hike, saying the bank should set the policy rate “as close to the neutral rate as possible” as inflation risks are “significantly skewed to the upside.”
Junko Nakagawa, a former Nomura Securities executive, joined the chorus for a 25 basis point hike, noting that upside risks to inflation are high under the current accommodative financial conditions.