The Bank of Japan (BOJ) left interest rates unchanged at 0.5% on Tuesday and announced it would slow the pace of its bond tapering after April 2026, signaling a cautious approach to unwinding its long-standing stimulus program.
While the central bank will continue reducing Japanese government bond purchases by 400 billion yen per quarter through March 2026, it plans to halve that pace starting in April 2026, lowering monthly purchases to around 2 trillion yen by early 2027. The BOJ also said it will review this plan in mid-2026 and could increase bond buying if long-term yields rise sharply.
The move comes amid mounting external risks, including U.S. tariffs and escalating tensions in the Middle East, both of which could impact Japan’s export-driven economy and inflation outlook. BOJ Governor Kazuo Ueda emphasized the uncertainty of global policy shifts and overseas market reactions.
Japan’s core inflation hit 3.5% in April, well above the BOJ's 2% target, driven by higher food and energy costs and a weaker yen. However, with trade tensions unresolved—Prime Minister Shigeru Ishiba and U.S. President Donald Trump have yet to reach a deal—many analysts believe the BOJ may delay further rate hikes.
The BOJ scrapped its yield curve control policy last year and began tightening gradually. However, concerns about disrupting markets, especially after recent spikes in super-long yields, prompted the more gradual tapering pace.
Economists remain split on the timing of the next rate increase, with some forecasting a hike later this year if real wages improve, while others expect the BOJ to hold off amid lingering global uncertainty.