Bank of Japan Hikes Rates But Falls Short on JGB Purchases

The Bank of Japan Raises Interest Rates to 0.25%

On Wednesday (July 31), the Bank of Japan raised interest rates from around 0.1% to around 0.25%.

Investors had anticipated the BoJ to hold interest rates steady at 0.1%. Additionally, the BoJ announced plans to reduce Japanese Government Bond (JGB) purchases.

According to the Change in Guideline for Money Market Operations and Decision on the Plan for the Reduction of the Purchase Amount of Japanese Government Bonds,

“The Bank decided, by a unanimous vote, on a plan to reduce the amount of its monthly outright purchases of JGBs so that it will be about 3 trillion yen in January-March 2026. The amount will be cut down by about 400 billion yen each calendar quarter in principle.”

The BoJ’s planned cut to JGB purchases fell short of market expectations of about 1 trillion Yen per quarter.

What the Experts Said

StoneX Market Analyst David Scutt commented on the reduction in JGB purchases, saying,

“BOJ goes soft on QQE taper speed. Basically, an acknowledgment it will be on the bid permanently from here on out USD/JPY.”

Yen Weakness and the Japanese Economy

The BoJ’s plans to cut JGB purchases may have implications for the Japanese economy and future monetary policy decisions. The USD/JPY reaction to the monetary policy decision suggests the BoJ fell short of expectations.

Yen weakness has led to higher import costs, impacting household spending and the Japanese economy. Weakness in the Yen may continue to adversely affect the households and the Japanese economy.

In July, the Japanese government revised its growth forecasts for the fiscal year ending March 2025 from 1.3% to 0.9%. The government also reiterated concerns about the weak Yen, reportedly stating,

“We can’t overlook the impact a weak yen and rising prices are having on households’ purchasing power,” the private-sector members of the council told Friday’s meeting that discussed the new growth forecasts.”

USD/JPY Reaction to the BoJ Monetary Policy Decision

Before the BoJ monetary policy decision and Outlook Report, the USD/JPY fell to a low of 152.103 before climbing to a high of 153.345.

In response to the BoJ monetary policy decision, the USD/JPY surged to a high of 153.886 before easing back.

On Wednesday (July 31), the USD/JPY was up 0.08% to 152.868.

Up Next

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