The Bank of Japan avoids committing to an April rate hike; the market expects a 66% probability of a rate hike this month

Gate News message: On April 6, the Bank of Japan sent a cautious signal by releasing its two quarterly regional economic reports, aiming to avoid stoking market expectations that a rate hike could happen this month. In a news release summarizing the views of branch managers, the central bank said that looking ahead, as uncertainty increases, people are concerned about rising prices—especially rising energy prices—and their negative impact on corporate profits and private consumption. The remarks suggest the Bank of Japan is unwilling to commit to a rate hike with just three weeks to go until its next policy decision on April 28. Based on pricing in the overnight index swap market (an interest-rate derivatives market), as of Monday, traders put the odds of a rate hike this month at about 66%, because the Iran war could pose greater upside inflation risks for Japan even as inflation is already expected to remain persistently elevated. The Bank of Japan also said that many reports indicate firms continue to pass through cost increases such as labor and logistics expenses to sales prices. At the same time, companies continue to respond to consumers’ inflation fatigue by limiting the size of price increases and strengthening their lineup of low-priced products.