June rate hike expectations rise ahead of Bank of Japan chief's speech

Bank of Japan Governor Kazuo Ueda is set to deliver a closely watched speech on Wednesday that may shed light on the central bank’s thinking regarding a possible June interest rate hike.

The speech, scheduled for 0830 GMT, is being closely monitored as a potential signal that could reinforce market expectations that the BOJ will raise short-term interest rates to 1% from 0.75% at its policy meeting on June 15–16, News.Az reports, citing Reuters.

Ueda faces a delicate balancing act. If he avoids signaling a June hike, it could further weaken the yen, which briefly crossed the key 160-per-dollar level earlier on Wednesday. However, a strong indication of a rate increase could also be risky, given the uncertain trajectory of the Iran war and the possibility that sudden developments could disrupt the BOJ’s policy plans.

Nevertheless, several factors suggest a strong chance of a June hike. The BOJ’s nine-member policy board is increasingly leaning toward an earlier move, with three members dissenting in April’s decision to keep rates unchanged and two others warning in recent speeches about mounting price pressures.

Wholesale inflation reached a three-year high in April, alarming policymakers over the speed at which companies are passing on higher costs.

U.S. Treasury Secretary Scott Bessent has also signaled Washington’s preference for BOJ rate hikes, saying last month that Ueda would do “what he needs to do” if granted independence by Japan’s government.

Since then, Japanese Prime Minister Sanae Takaichi has avoided publicly opposing an early rate increase. Finance Minister Satsuki Katayama also noted alignment in views with the BOJ governor, saying, “I was with the (BOJ) governor throughout the recent G7 meetings, and I feel our views are very much aligned in many respects.”

Ueda may choose to avoid directly referencing a June hike, as the BOJ’s April meeting summary indicated that one board member opposed giving explicit policy signals, according to Mari Iwashita, executive rates strategist at Nomura Securities.

“Even so, markets will focus on the chance of action if the BOJ signals its intent to keep pushing up rates,” she said. “By contrast, if the BOJ has no intention to hike in June, it would need to do some explaining.”

News.Az 

By Nijat Babayev