BOJ Rate Hike Next Week Confirmed, But Pace and Terminal Rate Uncertainty Lingers

The Bank of Japan is set to raise its policy rate by 25 basis points to 1.25% next week, taking rates to a 31-year high.

This move has already been fully priced in by markets, so the actual tradeable content lies in the detail around pace and terminal rate rather than the hike itself.

The BOJ has no preset view on where its terminal rate will ultimately land, with the pace of future increases dependent on how earlier hikes work their way through the economy and on the degree to which firms pass rising input costs on to households.

This uncertainty is compounded by a genuine split within the BOJ's board, with some members believing underlying inflation has already reached the bank's 2% target while others remain more cautious.