MNI POLICY: April Services Data Key For Further BOJ Rate Move

The Bank of Japan would consider raising its policy rate from zero to 0.1% should services prices data due on April 26 indicate significant upside risks to prices, but a weaker yen is likely to prompt little more than jawboning while underlying inflation remains below 2%, MNI understands.

The central bank will update its medium-term outlook, including its first inflation forecast for fiscal 2026, at the April 25-26 meeting, with the services data feeding into considerations for its June 13 meeting.

While the yen traded at JPY151.57 to the U.S. dollar on Wednesday after depreciating to JPY151.97 on Monday, weaker than the JPY151.94 level at which Japanese authorities stepped in during October 2022 to buy the currency, the BOJ would need time to ascertain whether currency depreciation is feeding through into significant upside risks to prices via dearer imports.

The BOJ would conduct “rate checking” to sound out the market ahead of possible foreign exchange intervention, but the responsibility for deciding whether to carry this out would fall to the Ministry of Finance.

While intervention would be authorities’ chosen response to currency weakness, officials understand that would have limited impact beyond the short term.

Still, Governor Kazuo Ueda has said he continues to carefully monitor forex moves and their impact on the economy and prices, and that the BOJ would act should currency markets significantly affect economic activity and prices.

However, he has ruled out any imminent policy action, noting that underlying inflation and medium- to long-term inflation expectations are still in the process of moving toward 2%. (See MNI BOJ WATCH: Ueda Says Rate Path Will Depend On Prices)

Unless the U.S. Federal Reserve changes its policy stance to an easing bias, global markets’ perception of the yen will not substantially change, BOJ officials warn.