BOJ to Decide on Interest Rate Tomorrow! Maintain 0.5% Rate, Inflation Forecast May Be Revised
Zhitong Caijing APP has learned that the Bank of Japan will announce its interest rate decision and economic outlook report tomorrow. The market is widely expected that the Bank of Japan will maintain its base rate at 0.5% and may revise its inflation forecast for this year upward. After the US-Japan trade agreement reduced some uncertainty, investors are looking for signs of another rate hike this year.
The main focus of this meeting will be whether the Bank of Japan will raise interest rates again this year. The market currently expects a probability of around 75% by the end of the year. According to informed sources, after the trade agreement eliminated one key uncertainty factor, some Bank of Japan officials may consider raising interest rates again.
However, due to the need to assess the actual impact of tariffs, the Bank of Japan will not consider sudden rate hikes. Bank of Japan Deputy Governor Noda Makoto stated last week that although this agreement is a major breakthrough, uncertainty remains high.
The market's expectations for another rate hike have warmed up, with October becoming a potential time point. Last week, Deutsche Bank Securities and Barclays Securities both advanced their rate hike expectations to October.
The US and Japan unexpectedly reached a trade agreement on July 22, setting most tariffs at 15%. Prior to this, the EU and the US also reached similar agreements, alleviating concerns about global economic growth.
Informed sources revealed that Bank of Japan officials believe the outcome of this negotiation is generally in line with expectations, which may not require a major adjustment to the overall economic outlook.
The Bank of Japan's inflation forecast is lower than economists' predictions.
Bank of Japan observers expect the Bank of Japan to raise its average inflation forecast for this year from 2.2% to 2.5%, and maintain its inflation forecasts for the next two years unchanged.
Former Bank of Japan Chief Economist Hayakawa Hideki stated that a steady price trend will allow the Bank of Japan to revise its inflation forecast upward, but the bank may maintain the rate below 2% to avoid over-speculation about interest rate hikes.
The US Federal Reserve is expected to announce its interest rate decision several hours before the Bank of Japan, and its conclusion and signals may have a significant impact on the Japanese yen's exchange rate. As of Tuesday, the Japanese yen has dropped by three months to its largest decline against the US dollar, with both the Federal Reserve and the Bank of Japan maintaining a wait-and-see attitude.
After US President Donald Trump repeatedly warned Japan not to use monetary depreciation to gain trade advantages, the Bank of Japan needs to strike a delicate balance to avoid appearing overly cautious in raising borrowing costs.
This is the first meeting held by the Japanese government led by Prime Minister Ishiba Shigeru since the Upper House election on July 20, which resulted in a historic defeat. The market has reflected strong discontent among citizens about inflation.
As the Japanese government currently does not hold a majority in either house of parliament, Prime Minister Ishiba is under intense pressure from both ruling party and opposition party lawmakers to resign.
The Bank of Japan typically does not comment on political issues, but political instability may make policy-making more complex. After various parties have promised cash handouts or tax cuts before the election, the Bank of Japan needs to closely monitor the impact of fiscal policy on inflation and bond yields.
Bank of Japan Governor Noda Makoto will hold a press conference at 14:30 Beijing time tomorrow to explain in detail the interest rate decision and economic outlook.