The Bank of Japan is anticipated to maintain its current interest rates during its upcoming June meeting, according to UBS analysts. However, there is an expectation that the bank will reduce its purchases of Japanese government bonds (JGBs), which currently stand at over 6 trillion yen per month, aligning with March levels.
This move is seen as a step towards tightening monetary policy by limiting liquidity injected into Japanese markets, albeit more gently than through direct rate hikes.
Recent inflation data, which fell short of expectations over the past two months, suggests the BOJ may opt for a cautious approach to tightening. UBS notes that the central bank is likely to revise its policy statement to reflect these adjustments in bond purchases. While some observers anticipate a rate hike to counter recent yen depreciation, UBS argues that the Ministry of Finance holds more sway over currency market interventions than the BOJ.
UBS analysts project a potential rate hike by the BOJ to 0.25% by October, though they do not rule out a surprise move in July. Recent wage data indicates progress in boosting consumption and inflation, driven partly by earlier wage increases negotiated by Japanese labor unions.
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