Bank of Japan Holds Rates, Plans Balance Sheet Slowdown Amid Global Risks

The Bank of Japan (BOJ) maintained its short-term policy rate at 0.5%, keeping it steady for the third consecutive month, and announced a plan to slow the pace of its balance sheet reduction starting in fiscal 2026 amid concerns about global economic uncertainties, including the Middle East conflict and U.S. tariffs. The yen rose about 0.2% against the dollar following the announcement, with markets closely watching Governor Kazuo Ueda's post-meeting press conference for insights on inflation trends and future monetary policy adjustments. Japan's 10-year government bond yield also rose above 1.45%, reflecting cautious optimism and the BOJ's openness to adjusting its bond tapering if economic conditions change. Despite ongoing efforts, Japanese Prime Minister Shigeru Ishiba and U.S. President Donald Trump failed to reach a trade deal during the G7 summit, with Trump leaving early due to escalating tensions in the Middle East and urging evacuation of Tehran. The BOJ remains vigilant about inflation, which remains above the 2% target, and is prepared to consider further rate increases if economic conditions warrant. Meanwhile, technical analysis suggests a bullish trend for GBP/JPY, with potential gains if certain resistance levels are surpassed, reflecting broader market reactions to BOJ policy and global uncertainties.