06:36 AM EDT, 06/17/2025 (MT Newswires) -- The main event overnight Monday was the Bank of Japan's latest policy meeting, said MUFG.

The BoJ decided to leave its policy rate unchanged at 0.50% and announced plans to slow down the pace of tapering. From the next fiscal year starting in April 2026, monthly bond purchases will be cut back by 200 billion yen per quarter, down from 400 billion yen for the rest of the current fiscal year.

The plans would lower the volume of monthly purchases to around two trillion yen by Q1 2027, which was roughly the same amount the BoJ was buying back in 2013, wrote the bank in a note to clients. The adjustment to the BoJ's tapering plans had already been well flagged in advance, which helps to explain the limited market reaction at least in the foreign exchange market, where USD/JPY is largely unchanged overnight as it continues to trade just below the 145.00 level.

In contrast, there has been a modest sell-off for long-term JGBs, stated MUFG. The 10-year and 30-year Japanese government bonds (JGB) yields have both risen by around 3bps and 2bps, respectively, perhaps reflecting some initial disappointment that the BoJ didn't go further and slow tapering for the current fiscal year as well although based on recent communication from BoJ officials including Governor Kazuo Ueda that never appeared likely.

Market participants are also eagerly waiting to see if the ministry of finance will adjust debt issuance plans going forward to help alleviate upward pressure on yields at the long end of the curve if required, pointed out the bank.

In the policy statement, the BoJ reiterated that "it is extremely uncertain how trade and other policies in each jurisdiction will evolve and how overseas economic activity and prices will react to them."

The extreme level of uncertainty is holding back the BoJ from raising rates further in the near term, added MUFG. In the accompanying press conference, Governor Ueda stated that it was appropriate to continue to reduce bond purchases in a predictable manner, and the BoJ plans to conduct a mid-term assessment of its bond taper plan in June next year.

The governor reiterated that long-term yields are to be formed in financial markets, although the BoJ is willing to respond nimbly if there is a sharp rise in yields. On the outlook for the policy rate, he continued to signal that the BoJ would raise rates further if the economic outlook is met, although he warned that uncertainty is "extremely high."

The governor noted that the hard economic data released in Japan is still looking "fairly solid so far" but that many expected worse data in the H2 of the year. In light of extremely high uncertainty, Ueda noted that it's becoming more vital to assess a wide range of data and info.

Overall, there were no significant changes in the BoJ's guidance for the policy rate. The BoJ is not in a rush to raise rates further right now and will wait for the extreme level of uncertainty to ease, added MUFG.

The bank still believes that the BoJ could hike rates further later this year, providing support for the yen (JPY). A trade deal between the United States and Japan in the coming months could give the BoJ more confidence to hike rates further if global trade disruption eases as well.