According to ChainCatcher, the market anticipates that the Bank of Japan will increase the overnight borrowing rate by 25 basis points to 0.75% during the policy meeting concluding this Friday, marking the first rate hike since January this year. This adjustment will elevate the benchmark rate to its highest level since 1995. Under the leadership of Governor Kazuo Ueda, the policy committee is expected to unanimously approve the rate hike decision. In previous meetings, some committee members had already expressed support for raising rates. Recent data indicates that wage growth in Japan remains robust, and the impact of U.S. tariffs is less severe than expected, further bolstering market confidence in the rate hike.
Market participants are now focusing on the Bank of Japan's future interest rate trajectory. Sources suggest that even if the rate reaches 0.75%, the central bank internally believes it has not yet achieved a 'neutral rate,' with some officials considering 1% still relatively low.
Analysts believe that if the central bank signals a more hawkish stance, it could help stabilize the yen but might also increase bond yields, putting pressure on the Japanese government as it prepares the budget for the next fiscal year. Overnight index swaps (OIS) indicate that traders estimate a 95% probability of a rate hike at this meeting, nearly double the expectation from early last month.
The policy statement is expected to be released around noon local time, with Kazuo Ueda scheduled to hold a press conference at 15:30.
Catherine
