The Bank of Japan is preparing to raise its policy rate to a 31-year high. The decision is expected to be announced this Friday, with inflation risks and the course of yen weakness drawing market attention.
There is growing speculation that the prolonged era of ultra-low interest rates is reaching a turning point. The Bank of Japan is moving to raise interest rates from their current level while seeking to balance economic stability with measures to address inflation. The decision is expected to be announced this week, and its impact on the yen and the government bond market will be closely watched.
Expectations are growing that the policy rate will likely be raised to 1.25%. This could be the first rate hike in three months, and the move is expected to be linked to developments at the European Central Bank and the US Federal Reserve. Attention is focused on future comments from Governor Ueda (植田) and the pace of monetary policy tightening.
Inflation risks include higher fuel prices, rising import costs caused by yen weakness and growing demand for AI. Some market participants believe that the outlook for rate hikes from next year onward could be revised upward to around 1.5%-1.75%. The neutral interest rate is also estimated to be around 2%, making the pace of future rate hikes a key focus.
Some observers have warned that large-scale fiscal policy could increase inflationary pressure. Attention is therefore focused on developments in the government bond market and the yen as the policy rate approaches the neutral range. The Bank of Japan is expected to maintain its commitment to giving top priority to price stability while preserving its independence.