(Bloomberg) — The Bank of Japan is widely expected to raise its benchmark interest rate by the highest level in 18 years on Friday, signaling growing confidence in the sustainability of inflation as it moves toward normalization.
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Governor Kazuo Ueda and the board of directors are likely to decide to raise the overnight call rate to 0.5% at the end of the two-day meeting. The 25 basis point increase was the largest since February 2007 and further signs that the economy is finally returning to normal.
The two points that Mr. Ueda proposed last month as key when considering raising interest rates have almost been cleared up. The country's wage growth has remained steady so far, with no major market shocks like those seen at the start of President Donald Trump's second term. Sources earlier told Bloomberg that Bank of Japan officials see a rate hike on Friday as likely unless President Trump causes too many negative surprises.
Overnight index swaps have more than doubled since late last month, suggesting traders see a roughly 100% chance of a rate hike at this meeting. About three-quarters of economists share this view, according to the latest Bloomberg survey, up from about half last month.
Rate hikes are well-anticipated by investors, and the meeting will focus on how Mr. Ueda charts a path for further rate hikes as Japan's borrowing costs remain near the lowest among developed countries. . Quarterly economic forecasts due to be released at the same time are likely to show the pace of price rises in line with the Bank of Japan's target in the second half of the three-year forecast period to March 2027, with further rate hikes evident. It shows that. On the future of central banks.
Mr. Ueda is unlikely to mention a specific interest rate path in order to keep options open, but if he is too dovish there is a risk that the yen will weaken and inflationary pressures will increase. It could also put monetary authorities on high alert for the potential need to intervene directly in markets.
The policy statement and quarterly economic outlook report are usually announced around noon, followed by Mr. Ueda's press conference at 3:30 p.m.
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“The market has already priced in the rate hike, and the focus is on Mr. Ueda's guidance at the post-decision press conference. He is expected to issue a seemingly cautious message without hinting at the timing of future rate hikes. ”
