MUFG expects the Bank of Japan to keep the policy rate at 0.5% during the June meeting, given the uncertain economic outlook. They believe there will be no changes to the bond purchase reduction plan, with little pressure to adjust the tapering pace in fiscal year 2026. However, there might be a slight decrease in bond cuts, possibly lowering quarterly reductions to ¥300 billion starting in fiscal year 2026. This move aims to support stability in the Japanese government bond market. The Bank of Japan’s announcement is anticipated between 0230 and 0330 GMT, and Governor Ueda’s press conference is set for 0630 GMT. Officials have indicated they expect the benchmark interest rate to remain at 0.5% in the coming week. The Bank of Japan is likely to keep interest rates steady until the end of the year and may also slow down bond tapering due to market pressures. This analysis suggests a cautious approach from the Bank of Japan. With interest rates steady at 0.5%, the central bank is being careful, not out of complacency, but in response to uncertainty in domestic and global economies. MUFG notes there is no push to speed up bond tapering, sending a message that the focus is on maintaining stability in the government bond market, rather than tightening monetary policy broadly. A slight adjustment in bond purchase reductions—from what was previously expected to smaller quarterly changes—indicates an effort to keep the market calm without fully stepping back from policy normalization. A reduction to ¥300 billion per quarter is not a halt, but a pause to take a more measured approach. Ueda’s press conference, scheduled a few hours after the announcement, is important. Previous briefings have often included remarks aimed at calming market reactions and shaping expectations without making major policy changes. Here, tone and phrasing are crucial, as these subtleties can provide clearer guidance for the future, even when key figures stay the same. From our perspective, the decision to keep rates unchanged and slow the bond tapering is not a passive move. It reflects a respect for the ongoing fragility in yield movements and capital flows. While volatility is not excessive right now, it hasn’t disappeared completely. There have been times when liquidity has thinned along the bond curve, especially during unexpected external shocks. Traders focusing on rate differences should recognize that the decision to keep rates steady for the rest of the year supports yen carry trades, especially as other major central banks near the end of their tightening cycles. This situation keeps rate spreads lower while the dollar’s strength may start to decline. Conversely, volatility sellers should remain cautious. Although major policy shifts seem unlikely soon, there is potential for perception-driven fluctuations. A slower taper means a longer central bank presence in the bond market, which reduces immediate disruption but also delays full price transparency. For those investing in rate-sensitive instruments or leveraging trades based on directional bias, the steady pace suggests you should adjust carry assumptions and reevaluate risk parameters. Testing scenarios shouldn’t rely on aggressive tightening. Instead, a fresh focus on the gaps between policy forecasts and market pricing will be essential. Minor changes in forward guidance—particularly about inflation and wage trends—could quickly impact the market. It’s also important to remember that while fiscal dynamics are stable, Japan’s long bond duration means small yield changes can have significant effects. This creates opportunities in curve steepening trades if we see a shift back to medium-term rates. Currently, there isn’t a strong push for aggressive pricing in either direction, but this calm may be temporary. A slow restart of tapering at lower quarterly amounts suggests some room for risk rebalancing. Any sudden rise in inflation expectations or credibility challenges could lead to reevaluations of debt sustainability, even if just slightly. We don’t expect any major surprises in the next announcement, but the tone and market reaction after Ueda’s comments will provide more insight than the headline figures. There’s potential to capitalize on market complacency if guidance slightly deviates from predictions. As always, acting too early can be costly, but being unprepared could be worse.

here to set up a live account on VT Markets now