Central Banks Focus on Energy Shock Ahead of Rate Decisions

Sree Kochugovindan, Senior Research Analyst at Aberdeen Investments, talks about the US economy and global central bank activity in a week of rate decisions.

The Bank of Japan left its key interest rate unchanged in a split vote that boosted the chance of a June hike. But the weak yen saw only a brief respite as Governor Kazuo Ueda cast doubt on the economy’s outlook.

The BOJ held its policy rate steady at 0.75% at the end of its two-day policy meeting Tuesday, according to a statement. The 6-3 vote represents the biggest divide under Ueda’s governorship, suggesting swelling pressure to normalize policy.

The yen strengthened soon after the decision, briefly breaking through the 159 level against the dollar. But it pared gains during Ueda’s press conference after he said there’s now less likelihood the BOJ will meet its outlook for the economy and prices. That keeps the door open to a longer hold as the war in the Middle East clouds prospects for growth.

“If I were to sum up the main reason for stand-pat in one sentence, it’s that the certainty of meeting our baseline outlook has declined quite significantly this time,” Ueda said.

Those comments came after the bank said in an earlier statement that price trends are likely to be in line with its stable inflation target of 2% in the second half of fiscal 2026 to fiscal 2027 — in line with past guidance. It also halved its forecast for economic growth this fiscal year to 0.5%.

In an hour-long press conference, the governor continued to give the even-handed comments that have left investors confused about his main message in the past. Having indicated there was less confidence in the outlook than before, he also kept the door open to a June rate move even if the economy starts to slow.

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