The Bank of Japan is expected to raise interest rates on Friday for the first time since 2008. This move comes as a global stocks rally eases concerns about market volatility caused by U.S. President Donald Trump's tariff threats. Traders are largely anticipating the rate hike, and attention will now turn to Governor Kazuo Ueda's post-meeting briefing for clues about the future trajectory of interest rates.
The Bank of Japan is poised to increase interest rates on Friday to levels not witnessed since the 2008 global financial crisis. This anticipated move comes as a global stock market rally alleviates policymakers' anxieties regarding the potential market disruptions caused by U.S. President Donald Trump's tariff threats.
With traders largely anticipating a rate hike, the focus will now turn to any insights offered by BOJ Governor Kazuo Ueda during his post-meeting press conference regarding the trajectory and timing of subsequent interest rate increases. At the conclusion of the two-day meeting on Friday, the BOJ is widely expected to elevate its short-term policy rate from 0.25 percent to 0.5 percent, a level unseen in Japan for 17 years. This action underscores the central bank's determination to progressively push interest rates toward 1 percent, a level deemed neither stifling nor excessively stimulative to the Japanese economy by analysts.'The market hasn't exhibited a significant negative reaction to Trump's pronouncements, so the BOJ will likely proceed with the rate hike,' stated Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities. A rate increase by the BOJ would mark the first since July of last year, when the move, coupled with subdued U.S. jobs data, jolted traders and triggered a global market downturn in early August. Determined to avoid a repeat of this scenario, the BOJ has meticulously prepared markets with clear signals conveyed by Ueda and his deputy last week that a rate hike was imminent. These remarks resulted in a yen rebound as markets factored in a roughly 90 percent likelihood of a rate increase. In a quarterly outlook report scheduled for release after the meeting, the board is anticipated to elevate its price forecasts, driven by growing prospects that widespread wage gains will propel Japan toward sustainably achieving the bank's 2 percent inflation target. As inflation has surpassed the BOJ's target for nearly three years and the weak yen has maintained elevated import costs, Ueda is likely to emphasize that further rate hikes are on the horizon. Many analysts already anticipate the central bank to implement another rate hike later this year, barring a Trump-induced market shock that disrupts global growth and Japan's fragile economic recovery.'Following the increase to 0.5 percent, the BOJ will probably raise rates at a pace of roughly twice a year. Consequently, the next rate hike could occur in September,' stated Mari Iwashita, executive economist at Daiwa Securities. 'However, numerous factors will influence the BOJ's rate-hike timing, including the trajectory of U.S. growth and inflation, the Federal Reserve's policy responses, and movements in the dollar/yen exchange rate,' she added. The domestic political calendar may also play a role, with an upper house election scheduled for July, during which Prime Minister Shigeru Ishiba's minority coalition could face challenges in securing votes, according to some analysts. Since assuming leadership in April 2023, Ueda dismantled his predecessor's radical stimulus program in March of the previous year and raised short-term interest rates to 0.25 percent in July. BOJ policymakers have consistently stated that the bank will continue to increase rates if Japan makes progress in achieving a virtuous cycle in which rising inflation fuels wage growth and stimulates consumption, ultimately enabling firms to pass on higher costs.
BANK OF JAPAN INTEREST RATES GLOBAL ECONOMY JAPANESE YEN INFLATION
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