BOJ Rate Hike Outlook: April Probability Decreases, June May Be Turning Point

TradingKey - The Bank of Japan will announce its latest interest rate decision on the afternoon of April 30. Market bets on a rate hike at the end of April have fallen from 55% a few weeks ago to less than 20%.

The primary reason for the declining probability of an April rate hike is Japan's high dependence on imported energy. Rising oil prices increase corporate costs and dampen household consumption, putting pressure on economic growth. BoJ Governor Kazuo Ueda noted that the conflict in the Middle East poses significant difficulties for policy decisions, and the central bank must strike a balance between curbing inflation and preventing economic damage.

However, the Bank of Japan's trajectory toward monetary tightening remains unchanged, and the structural factors driving rate hikes persist.

Triple pressures of wages, inflation, and the yen persist.

First, wage growth has been significant. In this year's spring labor negotiations, the average wage increase at large Japanese companies reached 5.26%, the highest level since 1991. Unions have secured wage hikes of over 5% for the third consecutive year. Rising wages have provided a safeguard for consumption and paved the way for the central bank to exit its loose monetary policy.

Second is the persistent price pressure. According to the latest data released by Japan's Ministry of Internal Affairs and Communications on April 24, the core CPI (excluding fresh food) index for March was 112.1 , up 1.8% year-on-year; the core-core CPI (excluding fresh food and fuel) index was 111.9, up 2.4% year-on-year.

A Bank of Japan quarterly survey indicates that over 80% of households expect prices to rise in a year, and five-year inflation expectations have reached 10.3%, the highest level since 2006. This suggests that inflation expectations are slowly becoming entrenched. If the central bank remains on hold for an extended period, it may be forced to take more aggressive rate hike measures in the future.

Third is the pressure of yen depreciation. The USD/JPY exchange rate recently approached the 160 mark, close to the level at which the Japanese government intervened in 2024. A sustained weak yen will drive up import costs and intensify inflationary pressures. Citi's analysis indicates that if yen weakness persists, there could be three rate hikes by 2026.

Focusing on the Bank of Japan's June Inflation Forecasts

Most economists have pushed back their rate hike expectations to June. According to Bloomberg survey data, more than 77% of respondents expect the Bank of Japan to take action in June. The chief economist at Sony Financial Group believes the central bank will maintain hawkish signals, with June or July being likely options. Deutsche Bank noted that a June rate hike would represent a continuation of the policy normalization process, as the tightening cycle has not yet concluded.

Since terminating its negative interest rate policy in March 2024, the Bank of Japan has implemented a total of four rate hikes, the last of which took place in December 2025. Market pricing for the terminal rate remains above 1.5%.

For investors, the core focus of next week's monetary policy meeting will be how the central bank adjusts its inflation forecasts and the policy signals it conveys. This information will serve as the primary basis for gauging the subsequent pace of rate hikes. It is advisable to closely monitor the yen's exchange rate and international oil prices, as these two factors will directly impact the central bank's decision window and market pricing.