The Bank of Japan raised interest rates by 25 basis points to 0.75%, in line with market expectations, marking the highest Japanese interest rate level in three decades and highlighting the central bank's gradual shift away from ultra-loose monetary policy. Given persistently strong inflation data and policymakers' increasingly confident signals, the market had fully priced in the rate hike decision.
From a market perspective, the lack of surprise in this policy adjustment has reduced the volatility risks typically associated with such moves. Unlike previous instances that triggered large-scale unwinding of yen carry trades, the yen's reaction this time is likely more influenced by policy guidance rather than the rate hike itself.
Market attention quickly shifted from the rate hike to the central bank's forward guidance and Governor Kazuo Ueda's assessment of future policy direction. During the press conference, Ueda is expected to adopt a cautious tone, emphasizing that future adjustments will depend on whether inflation remains sustainable and demand-driven. He is likely to highlight the importance of wage growth, household consumption, and corporate investment while also noting the recent rise in Japanese government bond yields and the need to avoid financial market turbulence.
Comments