BoJ Rate Hike Falls Short of Market Expectations

The Bank of Japan (BoJ) raised its policy rate by 25 basis points to 1.25%, its highest in over three decades, but the move failed to impress market participants.

The BoJ's decision was widely expected, but the 7-2 vote and relatively limited guidance on further normalization disappointed expectations for a hawkish signal, according to OCBC's Christopher Wong.

BoJ Governor Ueda signaled a change in thinking, noting that with underlying inflation nearing 2%, policy is moving into a 'new stage' where the focus is increasingly on keeping inflation around target and containing upside risks.

The BoJ's cautious tone tempered support for the Japanese Yen (JPY), which weakened after the rate hike. Wong highlights that USD/JPY remains driven by UST-JGB spreads and thin liquidity, with resistance around 158-159 and support near 155-153.