Bank of Japan Hikes Rates, Yen Underperforms on Policy Paralysis Fears

The Bank of Japan has raised its cash rate by 25 basis points to 1.25%, in line with market expectations.

According to TD Securities' Prashant Newnaha, this move validates the hawkish framework presented in July and suggests further hikes will come - possibly as soon as December.

While Japanese government bond yields are slightly lower, the yen has underperformed. This is partly due to concerns about potential policy paralysis in 2027, particularly with two hawkish board members set to leave their positions next year.

Newnaha notes that the BoJ's statement reaffirms its commitment to hiking interest rates roughly every quarter and points to a terminal rate of around 2.25%.