Commerzbank’s Volkmar Baur highlights that the Bank of Japan kept its policy rate at 0.75%, but sent a clear signal it is ready to hike soon, likely at the June meeting. Markets now price a roughly 75% probability of a move, supported by a more hawkish outlook and higher inflation forecasts, with potential additional JPY support if Governor Ueda reinforces this stance at his press conference.

BoJ prepares market for tightening

"The time just has not come yet: At its monetary policy meeting this morning, the Bank of Japan left its key interest rate unchanged at 0.75%, as the market, most analysts, and we had expected. The signal is clear, however: the BoJ is ready to raise interest rates soon."

"We have long expected the Bank of Japan to raise interest rates at its next meeting in June, and the market is currently pricing in such a move with a probability of around 75% this morning - 10 percentage points higher than yesterday."

"On the one hand, the 6-3 vote points to an imminent move. This was two dissenting votes more than last time and one more than most had expected. Furthermore, the published economic outlook reads quite hawkish, with many references to the risk of rising inflation."

"In the new forecasts released alongside the statement, the central bank also raised its inflation forecast for this fiscal year (which began in April) from 1.9% to 2.8% and now expects higher inflation even in the coming year."

"However, indications in the outlook that the 2% inflation target is now expected to be met in the second half of this fiscal year, and that the bank now intends to assess “the timing and pace” of monetary policy adjustments, speak quite clearly. A further clear commitment from Ueda during the presser would certainly provide additional support for the JPY."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)