Urgency for further monetary tightening diminishing

The reopening of the Strait of Hormuz vindicates the BoJ’s assessment that downside risks to economic activity have declined. But the resulting plunge in crude oil prices also means that inflationary pressures are diminishing. Accordingly, the Bank may wait longer than our current forecast of October before hiking rates again, but we remain confident that it will eventually lift its policy rate to a neutral level of 2%.