Bank of Japan’s hawkish hold reflects high geopolitical uncertainty in World Economy News 29/04/2026 Apparently, there was heated debate over today’s decision The Bank of Japan extended its pause at 0.75% — in line with market consensus, though against our call for a 25 bp hike. We had thought that recent data showing growing inflationary pressures, real interest rates remaining in deep negative territory, and solid “Shunto” wage-negotiation results might support BoJ action. Today’s results show that, although concerns about inflation grew, the majority of board members prefer a wait-and-see approach. Still, the 3-to-6 split is the largest divide among board members during Ueda’s governorship. We assume the split votes indicate that board discussions should focus on the timing of the rate hike, rather than the direction. The extent of dissent was a surprise. Board members Takata (who dissented in March), Tamura, and Nakagawa dissented. While Takata and Tamura are known for their hawkish views, Nakagawa’s stance was quite unexpected, as she is considered among the doves. Her term ends June 29 after June 16 meeting, making a June rate hike more likely. Sharp upward revision of inflation outlook In its quarterly macro-outlook report today, the BoJ raised its inflation forecast quite sharply to 2.8% year-on-year for fiscal-year 2026 (up from 1.9%) and 2.3% for FY27 (up from 2.0%). The FY28 estimate is 2.0%. During the press conference, Ueda stated that the BoJ’s base-case scenario anticipates oil prices returning to $70. The upward revision seems much more dramatic considering this BoJ assumption. In terms of growth, the GDP outlook was revised downward, though less sharply than inflation. GDP growth is 0.5% (from 1.0%) for FY26 and 0.7% (from 0.8%) for FY27. The FY28 outlook is 0.8%. The negative impact is mostly concentrated in 2026, and growth is expected to return above potential. The new outlook suggests that oil supply disruptions will modestly affect growth but will have a more prolonged and larger impact on inflation. Meanwhile, the Bank of Japan’s new CPI indicators – core CPI excluding institutional factors – showed that inflation rose to 2.5% YoY in March from 2.2% in February, while nationwide core inflation rose 1.7%. It also clearly shows that underlying inflation stays above 2% and firms up. BoJ watch Despite the quite hawkish signals we gathered from the meeting statement and quarterly outlook report, Ueda didn’t deliver a hawkish signal to the market. We believe the situation in the Middle East is fluid, so he would prefer not to provide a specific timeline for the next rate decision. Instead, he opened the possibility of future hikes. Ueda repeated basic comments that the BoJ is in the middle of a process to raise the policy rate to a neutral level and that, if the economy doesn’t undergo a significant slowdown, rate hikes are possible. We expect inflation pressures to accelerate and broaden in coming months. Tokyo CPI inflation will be released on Friday. We expect it to rise to 1.7% YoY. The government’s gasoline price cap is expected to limit the gasoline price growth, but other energy-related prices – airfare, travel, logistics, and manufactured goods prices – are likely to rise faster. A weak JPY and bi-annual price adjustment should push up prices. Meanwhile, we expect GDP to soften in 2Q and 3Q26, but the government’s fiscal support will provide a cushion, preventing the economy from falling into a contraction this