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Hanzawa says that: “There is a reasonable possibility that the BOJ will raise interest rates as early as in March or April.”For now, markets are not really expecting one to come next month at least. That as the Japanese central bank will still have to wait on how the spring wage negotiations play out. The next policy meeting will take place on 19 March, and traders are pricing in ~89% of no change to interest rates.As for the 28 April meeting, the odds of that are skewed to the other side. Traders are instead pricing in a ~64% probability of a 25 bps rate hike to take the policy rate to 1.00%.Despite pressure from the Takaichi government, policymakers at the central bank continue to stick to their guns for the most part. So far though, they are not really wanting to get involved in interfering with the yen currency. And for the most part, they are just focusing on the inflation battle still.But amid plans by the government to increase fiscal spending, they are hoping the BOJ will play ball so as to not raise interest rates any time soon. That conflict is what is also in part driving much tension in market sentiment towards Japan, with the yen and Japanese government bonds being sold heavily.In looking to the March and April meetings, it will be important to look out for BOJ commentary once we get more details on how the spring wage negotiations develop in the weeks ahead. We’ll find out the numbers soon enough. However, I would argue that it is going to be a similar case to last year. That is if the BOJ wants to get on with rate hikes, they’d better not rest on their laurels and get a move on. The timing window will just continue to close in on them, that especially since wage hikes this year are not expected to be as strong as last year – even if they are going to be at a reasonably higher level historically.It is expected that wage talks will result in a 5% pay hike or higher once again. And that is keeping alive expectations for the BOJ to at least bring the policy rate to 1% by mid-year.
This article was written by Justin Low at investinglive.com.
💡 DMK Insight
The potential for a BOJ rate hike in March or April is a game changer for forex traders. If the BOJ follows through, it could strengthen the yen significantly against the dollar, especially if the market remains unprepared for such a shift. Currently, traders are not pricing in an immediate hike, which means any sudden announcement could trigger volatility. Watch for key levels around USD/JPY; a break below recent support could signal a stronger yen. Additionally, this could ripple through other asset classes, particularly Japanese equities, which might react negatively to higher rates. On the flip side, if the BOJ delays, it could lead to a weaker yen and a potential rally in USD/JPY. Keep an eye on economic indicators coming out in the next few weeks, as they could provide clues about the BOJ’s decision-making process. The real story is how traders position themselves ahead of this potential shift—those who anticipate the move could capitalize on significant price movements.
📮 Takeaway
Watch USD/JPY closely; a break below key support levels could signal a stronger yen if the BOJ raises rates in March or April.
