Ueda Speech: BoJ Governor speaks on policy outlook after surprise interest-rate hike

After the Bank of Japan (BoJ) lifted the key interest rate and outlined a plan to taper its bond-buying programme at the July policy meeting, Governor Kazuo Ueda spoke at the press conference to explain the reasons behind the surprise policy move.

The Japanese Yen is trading with caution near 153.00 against the US Dollar. At the time of writing, USD/JPY is modestly flat on the day to trade at 152.75.

BoJ press conference key highlights

Judged appropriate to adjust degree of easing from the perspective of sustainable, stable achievement of 2% inflation.

Appropriate to taper JGB buying in predictable manner while ensuring market stability by allowing flexibility.

Will keep raising rates, adjust degree of easing if current economic, price outlook will be realized.

Confirmed that wage hikes becoming widespread.

Some market participants at July meeting expressed concerns about outlook.

Don't believe this rate hike will have significant negative impact on economy.

Don't have 0.5% policy rate in mind.

Will check impact of rate hikes up until this point when considering additional rate hike.

Don't believe economy, prices will slow down due to additional rate hike.

There are positive aspects of raising rates now to avoid sudden hikes in future.

We have just shifted our stance to use short-term rates as main policy tool as we no longer need massive easing.

Hard to tell when the next rate hike may be.

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This section below was published on July 31 at 03:56 GMT to cover the Bank of Japan's monetary policy announcements and the initial market reaction.

The Bank of Japan (BoJ) board members decided to raise the short-term rate target by 15 basis points (bps) from the range of 0%-0.1% to 0.15%-0.25%, following the conclusion of its two-day monetary policy review meeting on Wednesday.

The decision surprised the markets to the upside.

The BoJ decided to taper Japanese government bonds (JGB) buying to JPY3 trillion per month as of the first quarter of 2026.

Summary of the BoJ policy statement

Makes decision on rates by 7-2 vote.

BoJ board member Nakamura, Noguchi dissented to decision on rates.

Japan's economy, prices moving in line with forecast shown in quarterly report.

Decided that adjusting degree of monetary easing appropriate from standpoint of stably, sustainably achieving price target.

Will continue to support econoimc activity as real interest rates remain deeply negative, accommodative monetary environment to continue.

Expect to continue raising rate if economy, prices move in line with forecast shown in today's quarterly outlook report.

Will reduce scheduled monthly bond buying by around JPY400 billion each quarter.

May modify bond-taper plan upon mid-term view as appropriate, if deemed necessary for functioning of JGB market.

At June 2025 meeting, BoJ will discuss guideline for its JGB buying from April 2026, announce results.

To apply 0.25% interest to current account balances held by financial institutions at BoJ.

New guideline for money market operations will be effective from August 1, 2024.

Consumption is firm although being affected by rising prices.

Corporate, household inflation expectations heightening moderately.

BoJ’s Quarterly Outlook Report

Board's Core CPI Fiscal 2024 Median Forecast At +2.5% Vs +2.8% in April.

Board's Core CPI Fiscal 2025 Median Forecast At +2.1% Vs +1.9% in April.

Board's Core CPI Fiscal 2026 Median Forecast At +1.9% Vs +1.9% in April.

Real GDP likely +0.6% In Fy 2024 Vs Previous Forecast +0.8%.

Real GDP likely +1.0% In Fy 2025 Vs Previous Forecast +1.0%.

Real GDP likely +1.0% In Fy 2026 Vs Previous Forecast +1.0%.

Risks to inflation outlook skewed to upside for FY2024/25.

Risks to economic outlook skewed to upside for fiscal 2025.

Japan's economy recovering moderately, although some weakness has been seen.

Medium to long-term inflation expectations will rise as cycle between wages and prices continues to intensify.

Underlying CPI inflation expected to increase gradually.

If aforementioned outlook for economic activity and prices realised, BoJ will continue to raise policy interest rate, adjust degree of monetary accomodation.

Will conduct monetary policy as appropriate, from perspective of sustainable and stable achievement of 2% target.

Private consumption resilient despite impact of price rises.

Wage growth expected to increase as a trend, partly reflecting price rises.

Private consumption expected to be impacted by price rises, projected to increase moderately.

Vulnerability of financial system could increase mainly due to search for yield behaviour.

High uncertainties remain surrounding Japan's economic activity and prices.

Exchange rate developments more likely to effect prices compared to the past.

Firms' behaviour is shifting more towards raising wages and prices recently.

Market reaction to the BoJ policy announcements

USD/JPY dropped as low as 151.60 before rebounding sharply to test 154.00, in an immediate reaction to the Bank of Japan's (BoJ) surprise interest-rate hike. The pair is currently trading at 152.70, almost unchanged on the day.

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This section below was published on July 30 at 23:00 GMT as a preview of the Bank of Japan Interest Rate Decision.

• The Bank of Japan is expected to hold interest rates and trim bond purchases on Wednesday.
• The BoJ’s quarterly forecasts and Governor Kazuo Ueda’s words will grab more attention.
• The BoJ policy announcements are set to infuse massive volatility into the Japanese Yen.

The Bank of Japan (BoJ) is expected to hold its short-term rate target in the range between 0% and 0.1% when the two-day July monetary policy review meeting concludes on Wednesday.

The BoJ decision will be announced at around 3:00 GMT, accompanied by the bank’s quarterly outlook report. Governor Kazuo Ueda’s press conference will follow at 06:30 GMT.

What to expect from the BoJ interest rate decision?

The BoJ is set to stand pat on interest rates for the third consecutive meeting after ending eight years of negative rates in March.

The Japanese central bank is likely to debate whether to raise interest rates at its meeting next week, Reuters reported on Friday, citing four sources familiar with the BoJ's thinking.

One of the sources said, "the decision will be a close call and a hard one to make," given the uncertainty over the consumption outlook. "It's really a judgment call, in terms of whether to act now or later this year," another source said.

Meanwhile, “the Bank of Japan must raise interest rates to prevent excessive declines in the Japanese Yen,” private-sector members of a key government council advocated at a meeting earlier this month where Governor Kazuo Ueda was present, Minutes of the meeting showed on July 24.

Some politicians have called on the BoJ to offer more clarity on its rate hike plan partly to stem the Yen’s fall to multi-decade lows against the US Dollar.

The swaps market is pricing in a 70% chance that the BoJ will hike rates by 10 basis points (bps), lifting the rate target to the 0.1% and 0.2% range.

The BoJ, however, is almost certain that it will scale back its massive JPY6 trillion ($38.14 billion) monthly Japanese government bonds (JGB) purchase programme, as indicated by them at its June policy meeting.

Back in June, the central bank did not make any changes to the monthly JGB buying programme but indicated that they “will decide on specific bond buying reduction plan for the next one-two years at next policy meeting.”

Some respondents urged the BoJ to reduce its monthly government bond purchases to around 2 trillion to 3 trillion Yen ($12.4-$18.7 billion), from the current 6 trillion Yen, a summary of the survey released by the central bank showed on July 9.

Analysts at BBH preview the BoJ policy announcements, noting that “if policymakers really want to prevent the Yen from weakening again, it should deliver a hawkish surprise on both accounts. Updated macro forecasts will be released at this meeting and should also be tweaked to support the case for further tightening. Unfortunately, recent weakness in the economy suggests the BoJ will disappoint this week.” 

How could the Bank of Japan interest rate decision affect USD/JPY?

“Recent Yen strength has been driven by expectations of a hawkish BoJ decision this week. If the BoJ disappoints, then much of that rally will quickly reverse. And even if the BoJ delivers, there is potential for a “buy the rumor, sell the fact market reaction,” the BBH analysts added.

Should the BoJ surprise with a 10 bps rate hike or communicate a hawkish message in the policy statement, the Japanese Yen (JPY) could see an extension of the ongoing recovery from 38-year lows against the US Dollar (USD). However, the initial reaction to the policy announcements could quickly turn into a ‘sell the fact’ trading, as explained above.

On the other hand, if the central bank sticks to its previous language, that it would cautiously monitor the likelihood of achieving 2% trend inflation to gauge the next rate increase, it could be read as dovish. The downward revision to the growth and inflation forecasts could also lean in favor of doves. In such a case, the Japanese Yen is expected to come under intense selling pressure, lifting USD/JPY back toward the 160.00 figure.

From a technical perspective, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, notes: “Amid extremely oversold Relative Strength Index (RSI) conditions on the daily chart, a USD/JPY rebound seems inevitable.”

A dovish BoJ policy outlook could revive the Japanese Yen downside, driving the pair toward the 157.85 supply zone, where the 21-day Simple Moving Average (SMA) and 50-day SMA converge. Ahead of that level, the 100-day SMA at 155.65 is set to test bearish commitments. If the upswing gains traction, USD/JPY could aim for a retest of the 160.00 round figure. On the flip side, a sustained move below the 200-day SMA at 151.60 could accelerate the bearish momentum toward the 150.00 psychological barrier,” Dhwani adds.