Boj Preview: A High Bar For Hawkishness

J.P. Morgan expects the Bank of Japan to raise interest rates to 1.0% but notes that the hurdle for a hawkish surprise remains high due to prior market pricing. Political pressure from the Takaichi administration may lead to a slower pace of balance sheet normalization, potentially overshadowing the rate hike.

Key Takeaways

• 1.The Bank of Japan is highly likely to raise the policy rate by 25bp to 1.0% at the upcoming meeting.
• 2.Market expectations for further tightening make it difficult for the BoJ to deliver a 'hawkish surprise'.
• 3.Potential policy friction exists between the BoJ and the Takaichi administration regarding balance sheet normalization.