Bank of Japan decision soon - expect a hawkish tone, but of rate hike timing is uncertain

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Bank of Japan decision soon - expect a hawkish tone, but of rate hike timing is uncertain

As the Bank of Japan (BOJ) prepares to announce its latest policy decision, its likely the Statement will maintain a relatively hawkish stance, reinforcing expectations for a potential rate hike. However, the actual timing of such a move remains uncertain, as it will depend on how policymakers assess market conditions and economic risks at each meeting.

While Japan's economy has shown gradual signs of recovery, particularly in wage growth and inflation dynamics, the BOJ remains cautious about tightening monetary policy too quickly. The central bank ended its negative interest rate policy in March 2024:

• March 2024: Raised the short-term policy rate from -0.1% to a range of 0.0%-0.1%, ending the negative interest rate policy. ​

• July 2024: Increased the rate to approximately 0.25%. ​

• January 2025: Further raised the rate to 0.5%, marking the highest level in 17 years.

Further rate hikes will likely be data-dependent rather than immediate.

For today, analysts suggest that BOJ officials will aim to manage market expectations by keeping their messaging hawkish, reinforcing the need for policy normalization. However, whether the BOJ "pulls the trigger" on another rate hike soon will depend on:

• Inflation trends - Sustained price increases beyond cost-push factors.
• Wage growth - Whether companies continue to pass on higher wages to workers.
• Yen stability - A weaker yen has contributed to imported inflation, influencing policy decisions.
• Global economic risks - External factors, such as U.S. Federal Reserve decisions and China's economic trajectory, could impact Japan's outlook.

If the BOJ signals a clear path toward another rate hike, the yen could strengthen, while Japanese equities may see short-term volatility as investors adjust expectations. Conversely, if policymakers take a more cautious approach, markets may interpret this as supportive for risk assets but not so bullish for the yen.

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As is always the case with Bank of Japan meetings there is no set time for the statement. Experience suggests 0230 to 0330 GMT ( 2230 - 2330 US Eastern time) is a reasonable time to expect it. What is known re timing is that Ueda's press conference will begin at 0630 GMT (0230 US Eastern time).

Earlier:

• 52 of 52 economists surveyed expect the Bank of Japan to remain on hold this week.
• The central bank bonanza returns to town this week
• USDJPY Technical Analysis - Eyes on the BoJ and FOMC decisions

                            This article was written by Eamonn Sheridan at www.forexlive.com.

Source: Bank of Japan decision soon - expect a hawkish tone, but of rate hike timing is uncertain

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