Bank of Japan's "April Suspense": Rate Hike or No Change? The Market Has Bet 70%

Hot sections

            Stock picking
Data center
Market quotes center
Capital flow
Paper trading
        

        Client

Source: Jingu Data

The Bank of Japan’s remarks have left traders with the impression that, although the authorities have listed the conflict in the Middle East as a factor of uncertainty, the central bank will still raise the benchmark interest rate this month. One key question is whether the Bank of Japan will send a clear signal the way it did before the recent rate hike.

Before the policy decision is released on April 28, the Bank of Japan may not have many opportunities to do so. This month, the central bank has not scheduled any major speeches by committee members. The only public speech by Governor Ueda Kazuo is that he will be one of the keynote speakers at a meeting on April 13—and in such occasions, the governor’s remarks are usually fairly brief.

How the Bank of Japan communicates its intentions before the April meeting is crucial. Traders currently expect the probability of a rate hike to be about 70%. Such a high expectation means a rate hike would not be too surprising; but if the decision is to hold steady, it could hit global markets that are already tense due to the conflict involving Iran.

Under Ueda Kazuo’s leadership, the Bank of Japan has never kept policy unchanged when a rate hike was generally expected by the market. Since the bank began raising rates in March 2024, among all the decisions to keep rates unchanged, traders had given the highest probability of a rate hike of only 20% on the day before the decision (based on pricing in the overnight swap market).

This suggests that if the Bank of Japan does not plan to raise rates in April, it has urgent work to do to manage market expectations. Conversely, if the central bank does not try to soften those expectations, it will send a strong rate-hike signal.

To some extent, the Bank of Japan has already hinted at this. Starting last week, it began releasing new data on potential inflation, the output gap, and the so-called natural rate of interest—all of which, taken together, support the case for further rate hikes. The summary of views from the March meeting also points to a rate hike.

The Bank of Japan was previously criticized for causing volatility in global financial markets by not clearly pre-announcing a rate hike in July 2024. After that, the bank pledged to improve its communication. Since then, except for this January, at least one committee member has given a speech each month and then held a press conference. The outcome of the rate unchanged in January was almost not in question, because the authorities had just raised rates in December last year.

Before the rate hike at the end of last year, Ueda Kazuo had clearly hinted at the possibility of a rate hike in a speech, helping the market price in that expectation almost completely—so this hike, which pushed borrowing costs to a three-decade high, basically did not stir markets. Deputy Governor Ryozo Himino also took a similar approach before the January 2024 rate hike.

Even though there have been fewer public speeches this month, the Bank of Japan under Ueda Kazuo will still have some opportunities to adjust how it delivers its signals. The first opportunity will be the branch managers meeting next Monday.

Another possible opportunity may arise at a joint press conference following the Group of Twenty (G20) meeting in Washington. In such meetings, Ueda Kazuo typically answers only a few questions from reporters together with the Finance Minister, who is responsible for chairing most of the press conference.

Ueda Kazuo can also use his appearances in the legislature to communicate with the market. In the past two years, besides routine brief appearances, Ueda held a lengthy multi-hour Q&A session in the legislature in April, during which he explained the Bank of Japan’s policy and economic outlook.

Endless information, precise interpretation—everything is in the Sina Finance app

责任编辑：Zhu Huo Nan