The Bank of Japan is expected to raise its policy rate by 25 basis points to 1.25% at this week's monetary policy meeting, with markets almost unanimous in that view. The focus has shifted from whether the rate hike will take place to whether Governor Ueda Kazuo (植田和男) can preserve the Bank's independence.
Markets are almost unanimous that the Bank of Japan will raise its policy rate by 25 basis points to 1.25% at this Friday's monetary policy meeting. The yen is expected to break above 153 over the past week, while 10-year Japanese government bond yields are expected to reach a 30-year high, and these market reactions are instead underscoring the debate over the Governor's independence.
Governor Ueda Kazuo's (植田和男) response to pressure from US Treasury Secretary Bessent (ベッセント), together with Prime Minister Takaichi Sanae's (高市早苗) camp's preference for low interest rates, represents a dual source of political pressure. Market participants point out that a single phrase in the statement or the explanation given at the press conference could trigger another unwinding of carry trades.
In Japan, the attendance of Minister of State for Economic and Fiscal Policy Kiuchi Takahide (木内登英), along with internal differences at the Bank of Japan over the pace of rate hikes, has come to the surface. Some board members have indicated a faster pace since the July rate hike, and this is expected to be a factor in the decision at this meeting.
The record of past intervention includes $96 billion deployed in coordinated intervention in July and August, which helped curb the yen's sharp decline. Attention is focused on how this rate-hike decision will demonstrate the Bank's ability to balance price stability with exchange-rate stability.