Policy rate raised to 1.0 percent amid rising inflation risks
The Bank of Japan raised its policy interest rate by 25 basis points to around 1.0 percent in a 7-1 vote during its June meeting. The Policy Board also established a long-term plan to cap monthly government bond purchases at 2 trillion yen starting in April 2027.
Overnight call rate lifted to 1.0 percent
Deputy Governor Ryozo Himino chaired the Policy Board meeting in Governor Kazuo Ueda's absence.
The Board voted 7-1 to raise the uncollateralized overnight call rate from 0.75 percent to around 1.0 percent, with the complementary deposit facility rate set at 1.0 percent and the basic loan rate at 1.25 percent.
Board member Toichiro Asada dissented, arguing that Middle East conflict risks posed greater downside threats to output and employment than upside threats to prices.
Most members emphasized that corporate price pass-through has accelerated, pushing producer prices above 6 percent.
With spring wage negotiations yielding around 5 percent pay gains and global AI-related demand boosting exports, board members noted that underlying inflation is moving steadily toward the 2 percent target.
Monthly bond purchases capped at two trillion yen
The Board also decided by a 7-1 vote to maintain quarterly JGB purchase reductions of 200 billion yen through the first quarter of 2027, after which monthly bond buying will stabilize at roughly 2 trillion yen.
Naoki Tamura dissented, proposing continued quarterly cuts of 200 billion yen until early 2028 to allow market forces to determine yields.
Under the adopted framework, the central bank's JGB holdings are projected to decline from 480 trillion yen in March 2027 to 350-370 trillion yen by March 2030, representing a reduction of up to 39 percent from mid-2024 levels.
Cautious normalization in uncertain times
The policy hike confirms Japan's structural departure from decades of monetary accommodation.
Floor-capping monthly JGB purchases at two trillion yen neatly balances bond market stability against balance sheet shrinkage.
Yet persistent Middle East supply shocks and internal voting splits reveal fragile consensus on the pace of normalization.