BOJ Rate Hike Path Complicated by Bond Market Pressure
The Bank of Japan (BOJ) may be heading towards an early rate hike, but its path is being complicated by mounting pressure to support the bond market.
Prime Minister Sanae Takaichi's expansive fiscal agenda has driven up Japanese government bond yields, making borrowing costs higher for a country with the developed world's heaviest debt burden and drawing ire from Washington over spillovers into U.S. Treasury markets.
Takaichi has pledged to enhance communication with markets to preserve confidence in Japan's finances, and some analysts believe that pressure may have already influenced policy.
The BOJ's decision in June to pair a rate hike with a suspension of its bond-taper plan from next fiscal year suggests that it is being cautious not to stoke concerns over fiscal dominance and undermine its credibility in combating inflation.