BOJ holds at 0.75%. Outlook Report turns hawkish.

At its April 28 Monetary Policy Meeting, the BOJ held the policy rate at 0.75% (the target for the uncollateralized overnight call rate). It was the first meeting to leave the rate unchanged since the December 2025 hike (0.5 to 0.75%). At the same time, the Outlook Report released alongside projected FY2026 inflation at +2.8%, a level above the 2% target.

The latest core CPI (March) came in at +1.8%, still below target. The BOJ nonetheless set a bullish forecast, reflecting confidence in the virtuous wage-price cycle as well as higher energy prices tied to Middle East tensions beginning to push prices up. Governor Ueda said the Bank would "continue to raise the policy rate" if the economy and prices track the outlook, leaving the door open to further rate hikes.

The BOJ's policy rate sat in negative territory at -0.1% for a long time. The turning point was the exit from negative rates in March 2024. It then climbed step by step: to 0.25% that July, 0.5% in January 2025, and 0.75% in December 2025, and at this April meeting it maintained that 0.75%.

At 0.75%, the rate remains considerably low compared with the US (3.6%) or the UK (3.75%). This wide rate gap is the main driver of the persistent weak yen. As the BOJ raises rates, the gap narrows, but the pace is cautious. The Bank is moving one step at a time, checking whether the virtuous wage-price cycle is becoming firmly established.

The latest core CPI (ex-fresh food, March) was +1.8% year-on-year. It accelerated for the first time in five months but remains below the 2% target. Meanwhile, the Outlook Report's FY2026 forecast is +2.8%. The BOJ priced in acceleration ahead, presenting a forecast higher than the current reading.

Excluding energy and food, core-core CPI is at +2.4%, meaning the underlying inflation trend already exceeds 2%. Wage gains are being passed through to prices and services prices have been rising - the entrenchment of this "virtuous wage-price cycle" is the basis for both the bullish outlook and the stance toward further hikes. That said, the gap between the current reading (1.8%) and the forecast (2.8%) is large, and if higher energy prices run their course the forecast could undershoot.

Beyond rates, the BOJ is pursuing normalization in parallel by reducing its purchases of the government bonds (JGBs) it had bought in vast quantities. It is scaling back purchase amounts in stages each quarter, and as a result the long-swollen total assets have turned to decline as well. This is another form of tightening alongside rate hikes.

Raising rates while avoiding abrupt shifts in the government bond market - managing this "two-front normalization" carefully so as not to surprise markets is the BOJ's challenge. Long-term interest rates (the 10-year yield) have edged up to reflect normalization, and this will feed through to mortgage and corporate borrowing rates.

Monetary policy is decided by majority vote of the nine Policy Board members at the Monetary Policy Meeting, held eight times a year. The board comprises one Governor, two Deputy Governors, and six other members. Governor Ueda chairs, and meetings span two days of discussion.

The decision is announced around midday on the second day, followed by the Governor's press conference. At the January, April, July and October meetings, the "Outlook Report" presenting the economic and price outlook is released alongside, drawing particular market attention. This April meeting was one of those Outlook Report releases.

There are eight meetings a year. At the January, April, July and October meetings, the "Outlook Report" is released. With this meeting (Apr 28) concluded, the next is on June 15-16.

The market's biggest focus is when the next hike comes. Following the bullish Outlook Report and Governor Ueda's remarks, the market has begun to factor in an additional hike toward the summer. The decision at the next June meeting will be the next clue.

BOJ rates heavily influence the dollar-yen rate. When Japanese rates rise and the gap with the US narrows, the natural pull is toward a stronger yen. But the gap among Japan, the US and Europe remains wide, so the yen stays burdened. The bullish Outlook Report can help support the yen via expectations of further hikes.