ING: The Bank of Japan will maintain interest rates, but the possibility of a rate hike is underestimated.

Jin10 data June 16 - Forex analyst at ING, F. Pesole, pointed out that the market generally expects the Bank of Japan to maintain its interest rate at 0.5% this week. However, apart from any forward guidance, the main focus will be on the mid-term assessment of the Japanese government bond purchase operations. Although there is speculation that the Bank of Japan may reduce its quarterly purchase scale from 4 trillion yen to 2 trillion yen, it is expected that the Bank will maintain its current pace. While the Bank of Japan may not provide much interest rate guidance in tomorrow’s meeting, the risks are certainly skewed towards a hawkish stance. The market continues to underestimate the risks of a rate hike as early as July or September, priced at 10% and 25% respectively. The bank believes that the yen remains a fairly attractive hedging tool, especially if the US stock market faces more geopolitical shocks. An excessive rise in oil prices could weaken the yen’s appeal as a safe-haven asset, and the expected hawkish repricing by the Bank of Japan should offset this.