The Bank of Japan's recent communications have left traders with the impression that it will raise its benchmark interest rate this month, despite citing Middle East conflicts as a source of uncertainty. A key question is whether the central bank will send a clear signal in advance, as it has done before recent rate hikes. With its policy decision due on April 28, the Bank of Japan may have few opportunities to do so. No major speeches by board members are scheduled this month. Governor Kazuo Ueda's only planned public appearance is as one of the keynote speakers at an event on April 13—an occasion where his remarks are typically brief. How the Bank of Japan communicates its intentions before the April meeting is crucial. Traders currently estimate about a 70% probability of a rate hike. Such high expectations imply that a hike would not be a major surprise, whereas a decision to hold rates steady could jolt global markets already on edge due to escalating Iran-Israel tensions. Under Governor Ueda's leadership, the Bank of Japan has never held policy steady when markets widely anticipated a hike. Since the bank began raising rates in March 2024, in every instance where it kept rates unchanged, traders had assigned no more than a 20% chance of a hike the day before the decision, based on overnight swap market pricing. This suggests that if the Bank of Japan does not intend to raise rates in April, it faces urgent work to manage market expectations. Conversely, if the bank does not attempt to tone down these expectations, it would send a strong signal that a hike is coming. To some extent, the Bank of Japan has already given hints in this direction. Starting last week, it began releasing new data on underlying inflation, the output gap, and the so-called natural rate of interest—all of which generally support the case for further tightening. The summary of opinions from the March meeting also pointed toward a hike. After being criticized for causing turmoil in global financial markets by failing to clearly signal a hike ahead of its July 2024 decision, the Bank of Japan pledged to improve its communication. Since then, with the exception of January this year, at least one board member has given a speech followed by a press conference each month. The decision to hold rates in January came as little surprise, as the bank had just raised rates the previous December. Ahead of the rate hike at the end of last year, Governor Ueda explicitly hinted at the possibility in a speech, helping markets almost fully price in the move. This allowed the hike—which pushed borrowing costs to a three-decade high—to proceed with minimal market disruption. Deputy Governor Ryozo Himino employed a similar approach before the rate hike in January of last year. Despite the light schedule of public speeches this month, the Bank of Japan under Ueda will still have some opportunities to adjust its signaling. The first chance will come at next Monday's branch managers' meeting. Another possible opportunity may arise at a joint press conference following G20 meetings in Washington. At such events, Ueda typically only answers a few questions alongside the finance minister, who handles most of the briefing. Governor Ueda can also use his appearances in parliament to communicate with markets. In the past two years, besides routine short appearances, he has participated in multi-hour parliamentary Q&A sessions in April, during which he explained the central bank's policy and economic outlook.
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