Bank of Japan Statement on Monetary Policy (June 17, 2025)

The Bank of Japan, in line with expectations, left interest rates unchanged at 0.50% for a third consecutive meeting, following a 25-basis-point hike in January. The BoJ will start to reduce the pace of tapering its monthly bond purchases from the next fiscal year. “Japan’s economy has recovered moderately, although some weakness has been seen in part,” the BOJ said in a statement, adding that Japanese economic growth was likely to moderate amid trade headwinds and weakness in other major economies.

author: Economician

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Monetary Policy Decisions: At the Policy Board meeting on June 17, 2025, the Bank of Japan made the following decisions:

Uncollateralized overnight call rate: The Board decided (unanimously) to encourage the uncollateralized overnight call rate to remain at around 0.5% for the intermeeting period. This is the key policy rate for money market operations.
Plan for reducing JGB purchases: By an 8–1 majority vote, the Board approved a plan to reduce its monthly outright purchases of Japanese Government Bonds (JGBs) so that the amount will be about ¥2 trillion in January–March 2027. In principle, this purchase amount will be cut by about ¥400 billion each calendar quarter until January–March 2026, and by about ¥200 billion each quarter from April–June 2026 (see Attachment). [^1]
Economic and price assessments: The Board observed that Japan’s economy has recovered moderately, with some weakness in places. Overseas economies also grew moderately overall, despite some weakness reflecting various trade and policy developments. Exports and industrial production have been flat on trend, though there was some front-loading due to higher U.S. tariffs. Supported by improving corporate profits, business fixed investment has been rising moderately. Private consumption has continued to grow moderately, backed by a better employment and income situation, even though consumer sentiment is weak because of price rises and other factors. Housing investment remains relatively weak, and public investment is roughly flat. Financial conditions are accommodative.
On the price front, the year-on-year increase in the CPI (all items, less fresh food) has been around 3.5% recently. This high inflation rate reflects ongoing efforts to pass through higher wages to prices, as well as the effects of past import price rises and recent food price increases (such as rice). Inflation expectations have risen moderately.

Notes:

Footnote 1: In addition to these decisions, the Bank will implement measures to improve liquidity in the JGB market. This includes expanding the issues of JGBs eligible for the Securities Lending Facility under relaxed conditions for reductions in the Bank’s repurchase amount.
Voting Note: Voting for the action: UEDA Kazuo, HIMINO Ryozo, UCHIDA Shinichi, NAKAMURA Toyoaki, NOGUCHI Asahi, NAKAGAWA Junko, TAKATA Hajime, and KOEDA Junko. Voting against: TAMURA Naoki. Mr. Tamura argued that long-term interest rates should be determined by market participants and proposed reducing the Bank’s monthly JGB purchases by about ¥400 billion each quarter through January–March 2027. That proposal was defeated by a majority vote.

Outlook for Economic Activity and Prices (Reference)

The Bank’s outlook is as follows. Japan’s economic growth is likely to moderate in the near term. This is because trade and other policy measures abroad are expected to slow overseas economies and reduce domestic corporate profits, although accommodative financial conditions should provide some support. After this slowdown, Japan’s growth rate is expected to rise again as overseas economies return to a moderate growth path.

With regard to inflation, the effects of past import price increases and recent spikes in food prices (e.g. rice) – which have pushed up inflation so far – are expected to wane going forward. Underlying inflation (core CPI) is likely to remain sluggish in the short term due to the economic deceleration. However, as the economy later picks up and a sense of labor shortage grows, medium- to long-term inflation expectations are projected to rise and underlying inflation is expected to gradually increase. In the latter half of the projection period (as outlined in the April 2025 Outlook for Economic Activity and Prices), underlying inflation is likely to be broadly consistent with the Bank’s 2% price stability target.

There are various risks to this outlook. In particular, it is extremely uncertain how trade and policy developments abroad will evolve and how global economic activity and prices will respond. It is therefore necessary to pay careful attention to the impact of these developments on financial and foreign exchange markets, and on Japan’s economic activity and prices.

Attachment: Plan for the Reduction of JGB Purchases

In principle, long-term interest rates should be formed by financial markets. The Bank will therefore reduce its JGB purchase amount in a predictable manner, with enough flexibility to support market stability. Accordingly, the Bank will conduct outright JGB purchases through March 2027 as follows:

Planned purchase reductions: The Bank will cut the planned monthly JGB purchase amount so that it will be about ¥2 trillion in January–March 2027. In principle, this means reducing the amount by about ¥400 billion each quarter through January–March 2026, and by about ¥200 billion each quarter from April–June 2026 onward (see Annex for the schedule).
Interim assessment (June 2026): At the June 2026 Monetary Policy Meeting, the Bank will conduct an interim assessment of this purchase-reduction plan. In principle, the Bank intends to maintain the plan after that, but it may modify the plan if necessary, after reviewing developments and market functioning in JGB markets. At the June 2026 meeting, the Board will also discuss a guideline for JGB purchases from April 2027 onward and announce the results.
Responses to rapid rate rises: If long-term interest rates rise rapidly, the Bank will respond swiftly. For example, it could increase the amount of JGB purchases and conduct fixed-rate purchase operations of JGBs—both can be done regardless of the regular monthly schedule—and it may expand Funds-Supplying Operations against Pooled Collateral.
Flexibility in plan: The Bank is prepared to amend this purchase-reduction plan at future Monetary Policy Meetings if deemed necessary.