Bank of Japan Governor Kazuo Ueda declined to pre-commit to raising policy rates at the April meeting, pointing to the unsettled outlook stemming from the Iran conflict, but he also left open the prospect of a near-term hike after a series of public remarks during this week’s international meetings in Washington. That combination of caution and hawkish signaling suggests a rate increase remains possible in June, if not at the April 27-28 policy review.
Market participants noted that Ueda did not provide a clear indication that an April increase was certain, and attention focused on his decision to refrain from an explicit pre-commitment. At the same time, the governor did not dismiss the possibility of moving in April and emphasized the need to closely monitor developments in the Middle East and their effects on Japan’s economy.
Three sources familiar with internal BOJ discussions told Reuters that policymakers could remain undecided up until the final moments before the April meeting - weighing fresh developments in U.S.-Iran negotiations and the market responses they generate. "With so much uncertainty, it’s too early to decide now what to do at a policy meeting more than a week away," one of the sources said, a view echoed by another.
Ueda’s comments came during a Washington trip to attend IMF, G7 and G20 meetings, where he encountered repeated calls to adopt a more cautious stance in line with other major central banks that have shifted to "wait-and-see" stances amid volatile market moves tied to the conflict. Some of the most explicit public pressure came from Finance Minister Satsuki Katayama, who was also in Washington and is known as a close aide to dovish premier Sanae Takaichi. Katayama told reporters: "Most European and U.S. central banks seem to be taking a wait-and-see mode including (Federal Reserve Chair Jerome) Powell," remarks which some analysts read as a rebuke of the BOJ's push toward higher rates.
The International Monetary Fund added to the chorus advising patience, signalling it saw little immediate need for the BOJ to rush into tightening and suggesting that any second-round inflation effects from the war on broader price dynamics would be limited.
Markets had a particular focus on a Thursday news briefing as the final scheduled opportunity for the BOJ to send policy signals before the April rate decision. In that briefing, Ueda framed the bank’s approach in conditional terms: "Our decision will be based on the likelihood of our projections materialising, as well as the risks," he said, in contrast with prior instances when he had given firmer forward signals that a rate increase was being considered.
The lack of a forceful cue from the governor prompted traders to sharply diminish the odds of an April policy shift. "The fact Ueda didn’t use the word 'rate hike' this time is a sign to markets that rates will be on hold this month," said Mari Iwashita, executive rates strategist at Nomura Securities, who is widely followed for BOJ views.
Yet several comments by Ueda that received less attention suggested the central bank is keeping the option of a near-term move open. He argued that any negative growth impact from the Middle East conflict must be balanced against robust corporate profits and the stimulus provided by government measures. When asked whether the BOJ would replicate the more cautious posture of other central banks, he highlighted differences in Japan’s domestic position, pointing to very low real interest rates that continue to promote accommodative financial conditions.
Analysts interpret those remarks as signals that the BOJ has not abandoned a path of gradual tightening. "The BOJ probably sees no need to ditch its policy of continuing with moderate rate hikes," said Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities. She added: "If not in April, the BOJ will probably hike in June or July at the latest."
Market-implied probabilities show that investors price roughly an 80% chance the BOJ will raise rates by June, even as the likelihood of an April move has dropped to around 10% from a peak near 70% earlier in the month. Those shifts reflect the interplay between geopolitical shocks and underlying domestic indicators that argue for higher rates.
The BOJ’s case for further tightening rests on several features of the current economic backdrop. Japan’s policy rate stands at 0.75% - still below estimates of what would be neutral for the economy - while inflation hovers near 2%. Maintaining deeply negative real borrowing costs risks stimulating the economy excessively and could accelerate depreciation of the yen, which would raise import prices and broaden inflationary pressures.
Currency moves are a particular concern. The yen has been approaching the 160-per-dollar threshold that in the past prompted yen-buying interventions, raising the specter that continued depreciation could itself intensify imported inflation.
A minority of analysts still see scope for an April increase if geopolitical risks subside quickly. Ryutaro Kono, chief Japan economist at BNP Paribas, said the governor "probably hasn’t made up his mind on what to do at April’s meeting and will scrutinise until the last minute the fate of U.S.-Iran negotiations and the market’s response." Kono added: "If ceasefire talks result in a significant de-escalation of risks, there’s a chance the BOJ will push through a rate hike in April."
For now, BOJ officials face a delicate balancing act: weighing near-term geopolitical volatility and calls for caution against sustained domestic signals - profit strength, government stimulus and inflation around the 2% mark - that could warrant further policy normalization. Policymakers appear prepared to leave the decision open, monitoring both the trajectory of the conflict and the responses of markets and economic indicators as the April meeting approaches.
Summary of developments
Ueda did not commit to an April rate increase because of uncertainties tied to the Iran war but made hawkish remarks during international meetings that preserve the option of raising rates soon. Market odds for an April move fell sharply, yet investors still assign a high chance of a hike by June. The BOJ’s policy rate remains low versus neutral, inflation is around 2%, and currency weakness risks pushing up import costs.