USD/JPY: Yen Steady After Bank of Japan Holds Rate Unchanged at 0.5% Citing Growth Risks Ahead

Forex markets didn’t get overexcited about the BoJ’s event earlier today — the decision to keep rates flat was already priced in. But what’s not?

📢 BoJ Hits Pause, Markets Yawn

• The USDJPY pair hovered flat near ¥144.50 early Tuesday after the Bank of Japan held its interest rate at 0.5%, matching expectations, and virtually delivering no surprises that could jolt the yen and stir up some dealmaking.
• Despite the calm, technicals show the dollar is still trending above its 50-day moving average, but sitting below both the 100-day and 200-day lines — suggesting a market in flux, not direction.
• While the rate decision was baked in, the message wasn’t entirely boring. BoJ officials reiterated that any tightening would be slow, cautious, and based entirely on forward growth momentum.

📊 Bond Taper Blueprint (It’s a Long One)

• This said, the real focus was on what comes after the hold — and how the BoJ plans to scale back its massive bond-buying program amid persistent inflation and weakening growth.
• Japan’s central bank reaffirmed its roadmap to wind down government bond purchases, continuing with ¥400 billion quarterly cuts through March 2026 — part of a pre-announced effort to clean up its balance sheet.
• From April 2026, it’ll reduce those bond purchases by ¥200 billion per quarter until March 2027, eventually landing at around ¥2 trillion per month — a staggered drawdown that reflects officials’ ultra-cautious stance.
• What’s more, central bankers stressed the intent here is to improve “market functioning.” Read: they’re trying to drain liquidity without causing another bond market tantrum.

🧐 Inflation Stubborn, Growth Wobbly

• Inflation? Still hot. April’s consumer price index came in at 3.6%, well above the BoJ’s 2% target (which the print has been exceeding for over three years). A domestic rice shortage and rising import prices aren’t helping.
• GDP, in addition, is painting a bleaker picture. Japan’s economy shrank 0.2% in Q1 versus the prior quarter — a sign that growth may be running out of steam even amid ultra-loose monetary policy.
• The BoJ warned of “moderating” growth against the backdrop of trade tensions, weak corporate profits and declining exports weighing on the economy. That could delay any future hikes well into 2025.
• Still, the central bank believes accommodative financial conditions will offer some cushion — a nod to its preference for stability over sudden policy shifts.

👉 Main Takeaway

• Markets expected the hold, but what’s simmering underneath — sticky inflation, weakening GDP, and a slow-motion bond unwind — will define the yen’s trajectory in the second half of the year. For now, the dollar-yen is playing it cool. But don’t get too comfortable.