Bank of Japan Interest Rate Decision

Investing.com– The Bank of Japan (BOJ) is expected to maintain interest rates at the end of its two-day meeting on Friday, although a hawkish tone on rising inflation is anticipated.

Interest Rate Expectations

According to a Reuters poll, the BOJ is likely to keep its short-term benchmark rate at 0.25%. Following a 15 basis point hike in late July and a surprisingly hawkish tone, markets have adjusted expectations for no immediate changes.

The rate hike followed the BOJ’s end of its ultra-dovish, negative rate regime in March.

Inflation and Policymaker Comments

BOJ officials noted inflation is increasing as expected, largely due to enhanced wage growth across the country, suggesting future rate increases.

Governor Kazuo Ueda has indicated the central bank’s willingness to raise rates further, but the extent remains uncertain. Policymakers may reaffirm this stance while adopting a cautious approach.

Analysts from ANZ predict no immediate policy changes but foresee a gradual tightening cycle leading to a 1% policy rate by late-2025. Ueda is also likely to face questions regarding interest rates from new government leadership, with the Liberal Democratic Party holding elections following Prime Minister Fumio Kishida’s decision not to seek reelection.

Consumer Price Index

Consumer price index inflation data for August is also due on Friday, with forecasts indicating a rise in price pressures.

Market Reactions

Nikkei 225

Japanese stocks fell sharply following the BOJ’s rate hike in July, driving the Nikkei 225 into a bear market. While the index has recovered most of its losses from August, it remains below earlier highs. Limited reactions are expected if rates stay unchanged, but hawkish signals could negatively impact markets.

USDJPY

The Japanese yen strengthened significantly since the BOJ’s late July meeting, with the USDJPY pair hitting its lowest level in over nine months, briefly dropping below 140 yen. If the BOJ maintains rates, minimal reaction is expected; however, hawkish signals may bolster the currency further.