This article organizes market views on statements opposing reflationary policy by Minister Jōnai (城内実) and Minister Katayama (片山さつき), and on expectations of a faster pace of Bank of Japan rate hikes. The focus is on the impact of their comments and U.S. preferences, as well as the course of the Bank of Japan’s policy decisions.
Based on a report by Ichikawa of Sumitomo Mitsui DS Asset Management, the article discusses statements by Minister Jōnai (城内実) and Minister Katayama (片山さつき) opposing reflationary policy. It notes that U.S. preferences may also be reflected to some extent.
Following the government’s statements opposing reflationary policy, the market grew more convinced that the Bank of Japan’s rate-hike pace would accelerate. At its 18 September decision, the Bank of Japan raised the target for the uncollateralized overnight call rate by 25 basis points, setting it at around 1.25%.
As of 29 September, markets were increasingly pricing in additional 25-basis-point rate hikes in December this year and March and July next year, while the probability of a hike at the next meeting in October was also rising.
The 2-year, 1-year-forward rate, a long-term interest-rate indicator, has reached around 2.50%. The Bank of Japan is expected to continue making cautious policy decisions while assessing developments in the Middle East and the yen exchange rate.