The Bank of Japan is expected to decide on its first interest rate hike in three months, with the market expecting the policy rate to be raised to around 1.25%. The move is seen as a response to the yen's depreciation and rising inflation risks.
The Bank of Japan is expected to raise interest rates for the first time in three months at its monetary policy meeting, increasing the likelihood that the policy rate will reach its highest level in 31 years. The market views the hike as virtually certain, and the yen has moved toward further weakness since the 17th.
Some sources within the Bank are said to be concerned about inflation risks stemming from higher crude oil prices due to the situation in the Middle East and strong AI demand. The yen's depreciation is also being watched as a factor that could delay the pass-through of higher costs.
The economy's progress toward the Bank of Japan's 2% price stability target is supporting the case for a rate hike. At the same time, some officials believe that "if inflation exceeds expectations, increasing the size of the rate hike could also be an option," making the pace of future rate hikes a key focus.