According to a Jan. 22nd report by Bloomberg, BOJ Governor Kazuo Ueda and the Bank of Japan (BOJ)’s board are gonna raise the overnight call rate by 25 basis points to 0.5%. If confirmed, this increase would be the largest since February 2007.
The report said that reasons for the hike include solid wage growth and the absence of any major market shocks following U.S. President Donald Trump’s second term.
Overnight-indexed swaps show traders are certain about the rate hike, with predictions jumping from 50% certainty last month to nearly 100% now. Economists are also aligned—three-quarters of them expect the hike, according to a Jan. 21st survey.
If you look closely enough, you’ll see that since last year, the BOJ has been very careful about making any sudden moves, but conditions now seem to warrant action. “The wage data is there, and the markets have been calm since Trump’s re-election. The timing for a hike is clear,” said Bloomberg’s report.
Investors are now focused on what Ueda will say about future hikes. Japan’s borrowing costs are still the lowest among developed economies. Analysts expect the BOJ’s quarterly forecast, which will also be released Friday, to show inflation staying on target through March 2027.
However, Ueda is unlikely to commit to a clear way forward. Market experts warn that being too cautious in his tone could weaken the yen and lead to further inflation pressures. Currency intervention might then be necessary, a decision Tokyo hasn’t ruled out.
The official policy statement and the BOJ’s economic outlook report will be released at noon local time. Ueda is scheduled to hold a press conference at 3:30 p.m., where he will likely face questions about the BOJ’s next steps.
Stocks, crypto, and rate risks ahead of BOJ’s decision
Wall Street remains calm ahead of the BOJ’s decision. Futures for the S&P 500 fell by less than 0.1% on Wednesday evening. Dow Jones futures dipped 5 points, while Nasdaq 100 futures were down about 0.1%.
This performance actually follows a record-breaking day for the S&P 500, which gained 0.61% on Wednesday. The Nasdaq rose by 1.28%, and the Dow surged by 0.30%. Investors remain bullish on incoming tax cuts and deregulation under Trump, as well as strong economic growth in the U.S.
Corporate earnings are also giving investors’ confidence. Netflix shares jumped over 9% after its latest earnings report. So has Nvidia and Bitcoin whales MicroStrategy and BlackRock. Crypto markets were dealt a huge blow the last time BOJ hiked its rates. On August 5th 2024, we all had to watch Bitcoin lose nearly $10,000 in less than 5 hours after the announcement. The total market cap fell below $2 trillion for the first time in ages as investors freaked out.
At press time, Bitcoin has seemingly stabilized above $100,000 after a rocky December, and we’re now all waiting for the president to make an executive order directly about Bitcoin. Admittedly, he does have better priorities, but he has managed to pardon Ross Ulbricht, the founder of Silk Road.
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Source: https://www.cryptopolitan.com/boj-will-raise-its-benchmark-interest-rate/