BoJ: Japanese government incorporates "appropriate monetary policy" - signal strengthens ahead of July

The Kishida government includes the coded phrase "appropriate monetary policy" in its draft annual economic plan—a clear signal of non-opposition to a BoJ rate hike in July, as USD/JPY trades in the 155-157 range and JPY carry trade tensions rise. [ENCADRE titre="Key Context"] [ENCADRE contenu="This language marks a shift from previous statements, aligning with market expectations of a potential Bank of Japan (BoJ) policy adjustment amid persistent yen weakness and inflationary pressures."]

The Fact

The Japanese government has included the phrase "appropriate monetary policy" in its draft annual economic plan (provisional version, 28/06/2026)—a coded term in Japanese institutional language indicating that the executive does not oppose monetary tightening by the Bank of Japan (BoJ). This follows government statements calling for "monetary policy coordination" (Nikkei Asia, 29/06). The BoJ has kept its rates at 0.50% since March 2026 (last hike). USD/JPY is trading in the 155-157 range; the Ministry of Finance's (MoF) verbal intervention threshold is identified at 158-160.

Our Analysis

This political signal increases the likelihood of a BoJ rate hike on July 30-31, 2026. The risk geometry is asymmetric: if the BoJ raises rates by 25 bps, the JPY carry trade (massive short yen positions, particularly via macro funds and Japanese retail investors in foreign ETFs) could partially unwind—USD/JPY might retreat to 148-150 in a rapid sequence, as in August 2024. The combination of a potentially hawkish FOMC (July 29-30) and a BoJ hike the following day would constitute the most risky double catalyst for global exchange rate stability in H2 2026. Heinrich Vogel maintains a 55% probability of a BoJ hike in July, up from 35% at the start of the month.

To Watch

BoJ decision on July 30-31, FOMC on July 29-30, USD/JPY vs. MoF threshold of 158-160, Japanese June CPI data (July 14), capital flows of Japanese institutional investors (US TIC data).