Why Japan’s markets flipped the usual script after central bank rate hike — SkimNews
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- Bank of Japan raised its policy rate to 1.25% — the highest since 1995 — in a split 7-2 decision, with board members Toichiro Asada and Ayano Sato dissenting because August core inflation stood at 1.7%, below the 2% target.
- Japanese markets defied textbook expectations on the hike: the yen weakened past 157 against the dollar, the 10-year JGB yield slipped, and the Nikkei 225 gained 1.5%.
- State Street's Masahiko Loo and Oxford Economics' Shigeto Nagai said the hike came without an updated outlook report, limiting the BOJ's ability to reinforce a hawkish message through revised forecasts.
- Nagai told CNBC that PM Sanae Takaichi was not convinced to accede to the U.S. request — relayed by Treasury Secretary Scott Bessent in a May meeting with Finance Minister Satsuki Katayama — for faster BOJ rate hikes.
- Experts including EFG's Sam Jochim expect a terminal rate between 1.75% and 2% by 2027, with hikes roughly once every three months as underlying inflation approaches 2%; State Street's Loo expects another move around December.
- The BOJ acknowledged growth is likely to decelerate due to high oil prices stemming from the Middle East conflict, tempering its forward guidance even as it committed to continued tightening.
Why it matters: The split 7-2 vote and the missing outlook report signal a cautious BOJ rather than an aggressive one — analysts now expect the next hike around December with a terminal rate of 1.75%–2% by 2027. The two dissenters' reasoning, which Nagai reads as PM Takaichi resisting Bessent's push for faster tightening, means Japan's exit from ultra-loose policy will be gradual and politically contested, not synchronized with Washington.
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