BoJ Rate Hike Looms as Market Focus Shifts to Ueda's Forward Guidance

The Bank of Japan (BoJ) is widely expected to raise interest rates by 25 basis points to 1.25% in a move that would be its most tightly spaced policy tightening in years.

This decision comes just three months after the previous rate increase, and with core inflation accelerating, markets are pricing in a near 100% probability of this action.

However, while a 25 bps hike is seen as a done deal, Governor Kazuo Ueda's forward guidance will be closely watched for any signs of caution or hawkishness.

Derek Halpenny at MUFG notes that markets are pricing in roughly 90 basis points of cumulative hikes over the next 12 months, and warns that if Ueda's messaging falls short of these expectations, it could trigger a 'sell the fact' unwinding in the Japanese Yen (JPY).