The Bank of Japan is expected to raise interest rates to their highest level in 30 years.
TL;DR
The Bank of Japan is expected to raise interest rates to 0.75%, the highest since 1995, with strong market confidence due to wage growth and less-than-expected US tariff impacts. Investors are focused on future rate path signals, which could affect the yen and government budget pressures.
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According to ChainCatcher, the market widely expects the Bank of Japan to raise its overnight call rate by 25 basis points to 0.75% at its policy meeting ending this Friday, marking the first rate hike since January and pushing the benchmark interest rate to its highest level since 1995.
The policy committee, led by Kazuo Nagaeda, is expected to unanimously approve the interest rate hike. In the previous two meetings, some members had already expressed their support for the rate hike. Recent data shows that Japanese wage growth remains robust, and the impact of US tariffs is less than expected, further strengthening market confidence in the rate hike.
Market participants point out that investors' focus has now shifted to the Bank of Japan's statements regarding the future path of interest rates. Sources familiar with the matter revealed that even if interest rates rise to 0.75%, the central bank internally believes that the "neutral interest rate" has not yet been reached, with some officials even considering 1% to be too low.
Analysts believe that a more hawkish signal from the central bank could help stabilize the yen, but it could also push up bond yields, putting pressure on the Japanese government as it prepares its budget for the next fiscal year. Overnight index swaps (OIS) show that traders expect a 95% probability of a rate hike at this meeting, almost double the figure from the beginning of last month.
The policy statement is expected to be released around noon local time, and Kazuo Ueda will hold a press conference at 3:30 PM.