BoJ unlikely to raise interest rates, chance of policy tweak

Amongst institutional analysts the consensus expectation is that the BoJ will not raise interest rates until October. 

“We expect the Bank of Japan to keep its short-term rate target unchanged (range 0-0.1%), after hiking the policy rate for the first time in 17 years in March. Going forward, we expect the BoJ to keep a modest, gradual hiking path,” said ABN Amro. 

Deutsche Bank sees a risk the BoJ will “remove its JGB purchasing guidelines from its statement or revise them to make its purchasing operations more flexible,” – a move which could support the Yen. 

Despite seeing another hike as unlikely, many Japanese officals think the US Dollar’s recent ascent has gone too far and something needs to be done to support the Yen. 

“Ongoing yen weakness (partly driven by the pricing out of Fed rate cuts) means that there is an increasing probability that the BoJ may consider to come with the next rate hike earlier than the current consensus expectation of October 2024 (as indicated by market pricing),” says ABN Amro, adding that against this backdrop, Governor Ueda may try to verbally intervene by dropping clues about future tightening. 

Last week, the finance ministers of both Japan and South Korea acknowledged “serious concerns about the recent sharp depreciation of the Japanese Yen and the Korean Won.” The Bank of Indonesia went further and intervened to stabilize its slumping currency, according to analysts at Brown Brothers Harriman (BBH).