Hikes & Tapers Bond Buying, But Will Act Against Yield Spikes

The BoJ raised rates to 0.25%, against an economic consensus of no change. Still, there had been strong media speculation in the past 24 hours (including from the Nikkei) that a 15bps hike was being considered by the central bank.

• This may reflect the lack of follow through for both yen and JGB futures post the decision.
• On the bond purchase front, the BoJ notes it aims to curb bond buying to around ¥3trln per month by Q1 2026, which was in line with market expectations of halving the pace of bond buying over the next few years.
• Bond buying will be cut by around ¥400bn per quarter. The BoJ noted that it can adjust the bond buying plan as needed. It will also respond to sharp rises in yields.
• This leans somewhat dovish as the central bank clearly doesn't want local rates to surge.
• Still, the statement also noted the price risks were skewed to upside for the current and next financial year. The 2025 financial year inflation forecast (for core) was raised to 2.1% from 1.9% (the current year's forecast was trimmed to 2.5% from 2.8%).
• Wage increases this year were significantly higher this year compared to last year. Consumption was described as resilient despite price rises. Real rates were also described as quite low. The central bank will keep raising rates if the price outlook unfolds as expected. The growth outlook wasn't changed much.
• Hence more rate hikes can be expected if the outlook continues to unfold as projected. Such risks will likely be gauged further at Ueda's press conference later.