Bank of Japan poised to lift policy rate to 1%
The Bank of Japan has signalled it will raise its benchmark policy rate to 1% at next week's meeting. Core inflation has stayed above the 2% target for nine consecutive months.
Sources close to the Bank of Japan say the central bank is preparing to raise its uncollateralized overnight call rate target from 0.75% to 1% at the 17-18 June policy meeting. The move would mark the highest level since 2008 and the BoJ's third consecutive hike after April's 25-basis-point lift.
Core inflation rose to 2.7% in May, the ninth consecutive month above target. Services inflation hit 2.3%, a 32-year high. The yen has rebounded sharply from April's record lows, with the dollar-yen pair retreating to around 145. The government's move to reduce long-dated bond supply has provided additional support to the curve.
Finance Minister Katsunobu Kato said the government "fully respects" the BoJ's independence. Mizuho Bank chief economist Toru Sasaki said "a move to 1% is now the base case; the question is when we go to 1.25%". Toyota and Sony shares have fallen 2% on the week as exporter margins come into focus. This is not investment advice.
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