VIEW Investors react to BOJ decision to stand pat on interest rates

Reuters

16 hours ago

June 17 (Reuters) - The Bank of Japan kept its interest rates steady on Tuesday and said it would slow the pace of reduction in its bond purchases next year, signalling a cautious approach to unwinding its decade-long monetary stimulus.
As widely expected, the central bank maintained short-term interest rates at 0.5% by a unanimous vote at the two-day policy meeting that ended on Tuesday.
The decision comes amid escalating Middle East tensions and new U.S. tariffs, complicating the BOJ's efforts to raise still-low interest rates and shrink a balance sheet now roughly the size of Japan's economy.
The 10-year JGB yield rose 1.5 basis points to 1.465% on the news, while the yen was flat at 144.795 against the dollar.
NORIHIRO YAMAGUCHI, SENIOR JAPAN ECONOMIST, OXFORD ECONOMICS, TOKYO:
"The Bank of Japan's decision to slow the pace of QT in FY2026 is an attempt to placate nervous bond markets following a recent spike in ultra-long JGB yields. It appears that the bank is prioritizing market stability during the process of normalizing its balance sheet. It could potentially harm the real economy and the government's finances if it spreads to shorter-term yields.
"QE is likely to continue to be an essential policy tool, given that the JGB market could become more fragile amid heightened fiscal concerns and changes in the market structure."
TOHRU SASAKI, CHIEF STRATEGIST AT FUKUOKA FINANCIAL GROUP, TOKYO:
"The reaction is muted. Probably the market will wait more for more nuance from Governor Ueda. The BOJ still has a huge amount of the JGBs and it's not decreasing that much. So in that case, the slowdown of the purchasing pace is probably partly because of the volatile market for JGBs and also the uncertainty over the global economy.
"It's difficult to hike rates because we are still under uncertainty over the tariffs of the United States and also now another uncertainty comes from the Middle East.
"I think the BOJ will continue to stress the uncertainty in the global economy and then use that situation as an excuse for no action. If this kind of a situation continues, I think BOJ cannot hike interest rates within this year."
MIKI DEN, A SENIOR JAPAN RATE STRATEGIST AT SMBC NIKKO SECURITIES, TOKYO:
"A reduction of bond buying amounts for maturities up to 10 years suggests that the BOJ wants the market to decide the yields, while for the super-long bonds, the BOJ kept the purchase amount the same to respond to the balance of supply and demand."