BOJ Set for Rate Hike and Taper Pause Amid Bond Market Volatility

The Bank of Japan (BOJ) is reportedly set to raise its short-term policy rate to 1% next week, according to market pricing and sources. The rate decision is expected to be announced on June 16, with market odds indicating a ~84% chance of a hike.

Additionally, the BOJ is considering putting an end to its bond tapering program, which could start from April 2027. This move would counter recent speculation that the program would halt at the beginning of the next fiscal year.

The decision to pause the bond tapering program comes as a response to the sudden surge in Japanese bond yields due to the Middle East conflict and its impact on government finances. Policymakers are cautious not to shock the economy, and this move is seen as necessary to stabilize conditions in the bond market, which has become fragile and vulnerable.