The summary of opinions from the Bank of Japan's monetary policy meeting on April 27-28, released on Tuesday (May 12), showed that some policymakers advocated for a rate hike as soon as possible, with some even explicitly mentioning the possibility of action in June. This highlights the growing hawkish shift within the central bank as the oil price shock triggered by the Iran war intensifies the pressure for recent policy tightening.



The yield on benchmark 10-year Japanese government bonds climbed to a 29-year high on Tuesday after the summary of opinions from last month's meeting revealed an increasingly hawkish policy tone.

Key points raised by committee members: From "the next meeting" to "every few months"

The summary of opinions quoted a committee member as saying, "Even though the future course of the Middle East conflict remains uncertain, the Bank of Japan is quite likely to raise interest rates starting from its next meeting."

Another committee member stated, "While there is no need to act hastily at present, the Bank of Japan should raise interest rates as soon as possible unless there are clear signs of an economic slowdown."

The third committee member held a more radical view: given that the Bank of Japan's policy rate is still quite far from the neutral level, the central bank must raise interest rates every few months and "not hesitate" to accelerate the pace of rate hikes when inflation risks rise.

Hints at the June meeting

These comments have increased the likelihood that the Bank of Japan will raise interest rates at its next policy meeting on June 15-16.

At its April 27-28 meeting, the Bank of Japan kept its short-term policy rate unchanged at 0.75%, but hawkish divisions within the committee highlighted growing concerns about inflationary pressures from the Middle East conflict. Three of the nine committee members pushed for a rate hike; although the proposal was rejected, it did lead to a significant upward revision of the central bank's inflation forecast.

Inflationary pressures and Middle East risks

The summary of opinions shows that many Bank of Japan policymakers said the war with Iran is exacerbating inflationary pressures, increasing the risk of a second-round effect, and bringing forward the time when underlying inflation will reach 2%.

The summary quoted a committee member as saying, "With the price outlook significantly revised upward and uncertainty in the Middle East remaining high, all scenarios point to further upside risks to prices." The committee member added, "Furthermore, if supply-side constraints materialize, they will exert extremely strong upward pressure on prices."

The Bank of Japan's April meeting summary released a clear hawkish signal. While maintaining the current interest rate, several members advocated for a rate hike as soon as possible "before a significant economic slowdown," with some even stating that "a rate hike from the next meeting onwards is highly likely." As the 10-year JGB yield climbed to a 29-year high, market expectations for a June rate hike are rising. Policymakers are generally concerned that the energy shock triggered by the Iran war will exacerbate inflationary pressures and could trigger a second wave of effects. If supply-side constraints become more apparent, the Bank of Japan may be forced to accelerate its tightening pace. The June meeting will be a crucial window for determining whether the Bank of Japan will officially begin a continuous rate hike cycle.

How do institutions view the yen's exchange rate?

The USD/JPY pair is currently trading around 157.57, up slightly by 0.27% on the day. As of 11:25, it reached a high of 157.65, with a range of only 0.36%. After rebounding yesterday, the exchange rate continued its narrow upward trend, but remains within its recent trading range. The market is digesting the combined impact of the Bank of Japan's hawkish signals and the US-Iran situation.

HSBC strategists point out that Japanese policymakers have recently intervened in the foreign exchange market to support the yen, but whether this rally can continue depends on three key factors: the Bank of Japan's policy path, global yield trends, and fiscal risks.

HSBC specifically emphasized that if June passes without a rate hike by the Bank of Japan, the market may perceive the central bank as "still lagging behind," potentially putting renewed pressure on the yen. Furthermore, if the cross-party fiscal proposals in June include targeted tax cuts, it could reignite market concerns about the sustainability of Japan's debt, thus exerting downward pressure on the yen.

Fxstreet analysts believe the USD/JPY pair is currently in a tug-of-war between bulls and bears. Factors supporting the dollar include: ongoing US-Iran tensions and safe-haven inflows into the dollar; factors weighing on the yen include: Japanese household spending declining for the fourth consecutive month and rising oil prices dragging down the Japanese economy.

However, at the same time, the hawkish expectations of the Bank of Japan and the delayed expectations of a Federal Reserve rate cut have created a significant divergence, limiting the upside potential of the USD/JPY pair. Analysts point out that traders have begun to reduce their bets on a Fed rate hike in 2026, a stark contrast to the Bank of Japan's April meeting which left room for further rate hikes.

At 11:29 Beijing time, the USD/JPY exchange rate is currently at 157.57/58.