Markets price 84% probability of a hike as BOJ aims to stabilize bond yields amid fragile economic outlook.
The Bank of Japan is expected to raise its short-term policy rate to 1% at next week’s meeting, aligning with market expectations. Traders have priced in an 84% chance of the move, reflecting growing confidence in the decision.
The central bank had previously signaled a gradual shift away from ultra-loose monetary policy, with bond tapering discussions gaining traction. Recent speculation suggested a potential halt to tapering as early as April 2025, but reports now indicate a delay until April 2027. The BOJ also plans to maintain its current bond-buying pace beyond the next fiscal year.
Rising Japanese bond yields, exacerbated by geopolitical tensions, have pressured policymakers to act cautiously. A rate hike aims to balance inflation control without destabilizing the economy, particularly as government finances face additional strain.