Investors responded to the interest rate hike from the BOJ

SINGAPORE (Reuters) – The Bank of Japan raised interest rates to their highest level since the 2008 global financial crisis on Friday, signaling confidence that rising wages will keep inflation at its 2% target.

The board voted 8-1 to raise the BOJ’s short-term policy rate to 0.5% from 0.25%. Board member Toyoaki Nakamura disagreed with the decision.

Quotations:

Naoya Hasegawa, Chief Bond Strategist at Okasan Securities, Tokyo

“The decision was in line with our expectations. We are awaiting comments from BOJ Governor (Kazuo) Ueda at the post-meeting news conference. We want to know not why the BOJ raised rates at this meeting, but his view on the future rate path. The market expects the BOJ to raise rates every six months, so on top of that We want to know Ueda’s point of view.

Matt Simpson, Senior Market Analyst, City Index, Brisbane

“The hike may have been expected but, for what seems like the first time in a very long time, there has been no major change in their economic outlook. This leaves the door open for another 25bp hike by the end of the year, with rates sitting at a whopping 0.75%.”

Takahiro Otsuka, Senior Fixed Income Strategist at Mitsubishi UFG Morgan Stanley Securities, Tokyo

“The result was as expected, but the BOJ seems a bit hawkish in raising the inflation forecast. We want to confirm the comments from (BOJ Governor Kazuo) Ueda to confirm the BOJ’s position.”

Kieran Williams, Head of Asia Fax, Intoc Capital Markets, London

“The statement is something of a Rorschach test, with hawks suggesting that price concerns will shift to the upside and the BOJ will continue to rate if the economy aligns with its outlook… Doves are sticking up. A line of expectations from Nakamura’s resistance, negative wage statements, notes of caution and easy financial conditions.”

“The evolution of the yen’s price action throughout the day will depend on the tone of BoJ Governor Ueda’s press conference.”

Joseph Capurso, Head of Global and Sustainable Economics, Commonwealth Bank of Australia, Sydney

“They’ve dropped a lot of hints in the media that they might do that, and they’re going to hike again this year, we think they’re going to hike maybe twice more this year. But they may decide to wait for a while in the middle of the hike. The hikes… so maybe mid-year.” We think they will be walking again.

Tom Nakamura, Currency Strategist and Associate Head of Fixed Income, AGF Investments, Toronto

“As widely expected, the 25 basis point rose to 0.5%, but the inflation forecast has been raised for both headlines and core issues. I think the Bank of Japan can be more bold in their assessment, but this reinforces broader market expectations. For another 25% in the year bps walk.

“The market response should be neutral, perhaps with a slightly higher yen on the margins and slightly higher Japanese government bond yields. Ueda’s press conference will be key… to refer to the expected rate of neutralization and how it will affect the pace and size of future policy changes.”

Naka Matsuzawa, Chief Macro Strategist, Nomura, Tokyo

“Their logic is the same. They are still far from neutral, so it is natural to make adjustments. This is not necessarily tightening, but in a simple way.”

“Unless the BOJ changes its rate hike logic, or lowers the neutral point — about 1% — the market will have no room for further hikes in the future.”

Masato Koike, Senior Economist, Sompo Institute Plus, Tokyo

“The focus of Ueda’s press conference was what was different compared to December in terms of the data this time. Sure, there were new inputs like the BOJ branch managers’ meeting and US President Donald Trump’s opening speech, but at least Japan’s wage situation hasn’t changed much.”

“The terminal rate is also a point of interest. The economy will be on track (per the BOJ forecast), but it is questionable if inflation will remain above 2% at the end of FY25. If commodity inflation slows and is not fully passed on to service prices, the BOJ will raise rates above 1%.” May not be able to ramp up and stop at around 0.75%.

Christopher Wong, Currency Strategist, OCBC, Singapore

“Dollar/yen went both ways in response to all the votes, but then eased. The revision to the CPI forecast reflects policymakers’ confidence in inflation and the economy meeting expectations. The next focus is on Governor Yuda’s press conference.”

Hirofumi Suzuki, Chief Fax Strategist, SMBC, Tokyo

As already widely reported, the price hike itself is completely sold out. The rate hike was as I expected, and I now predict that the Bank of Japan will implement a rate hike every six months.

“With a sharp change in the inflation outlook for fiscal years 2025 and 2026, the yen has responded with appreciation. Governor Yuda’s comments on exchange rates during the press conference are noteworthy.”

Ben Bennett, Asia-Pacific Investment Strategy, Legal and Comprehensive Investment Management, Hong Kong

“The decision is well-telegraphed. A backdrop of higher global yields and a stronger dollar is supportive of such a move, reducing the likelihood of a repeat of the summer market crash when rising Japanese prices lead to a rise in the yen.”

“Today’s action is still positive, but I’m not surprised that the market’s reaction is modest.”

Kota Suzuki, Strategist, NOMURA ASSET MANAGEMENT, Tokyo

“I expect rates to remain the same for at least the next six months. This rate hike has taken six months since the last time. The central bank will carefully assess the economic situation and will be a little more cautious from now on. The impact of interest rate hikes.”

If the price increase comes in the future, it will probably be due to the depreciation of the yen, which will affect the price of the import price increase.

Interest rate hikes are due to economic uncertainty in Japan and overseas.

Takeshi Minami, Chief Economist, Norrinchukin Research Institute, Tokyo

“The BOJ has kept its rate outlook above 2% for both fiscal 2025 and 2026, an improvement from previous forecasts of 1.9% for both years. The guidance rate will stop at 0.5%-1%.”

“Whether the BOJ can do that may depend on oil prices and foreign exchange rates…I don’t think inflation is still strong.”

Shoki Omori, Global Desk Strategist, Mizuho Securities, Tokyo

“This price increase was fully sold, resulting in no significant volatility.”

“The inflation forecast for the Outlook report has been revised upward due to cost-push factors. Although comments on rice prices were reported earlier, this emphasis may be intended to revise the inflation outlook upward. Driven by inflation. Raising expectations for a policy rate hike.”

“A preliminary assessment of the Outlook report suggests that while further interest rate hikes are expected in the future, emphasis is placed on maintaining flexibility in terms of timing and maturity.”