The Bank of Japan is expected to raise interest rates to the highest level in thirty years

Market expectations are widespread that the Bank of Japan will raise the overnight lending rate by 25 basis points to 0.75% at the policy meeting ending this Friday, marking the first rate hike since January of this year, with the benchmark rate also reaching its highest level since 1995. Under the leadership of Governor Kazuo Ueda, the policy committee is expected to unanimously approve this rate hike decision. In the previous two meetings, some committee members had already expressed support for raising rates. Recent data shows that wage growth in Japan remains robust, and the impact of U.S. tariffs has been less than expected, further strengthening market confidence in a rate hike.

Market participants point out that investors are currently focused on the Bank of Japan's statements regarding the future path of interest rates. According to informed sources, even if the rate rises to 0.75%, the central bank still believes it has not reached the "neutral rate," with some officials even considering that 1% is still too low.

Analysts believe that if the central bank signals a more hawkish stance, it could help stabilize the yen, but it may also push up bond yields, putting pressure on the Japanese government as it prepares the budget for the next fiscal year. Overnight index swaps (OIS) indicate that traders expect a roughly 95% probability of a rate hike at this meeting, nearly doubling from the beginning of last month.

The policy statement is expected to be released around noon local time, and Kazuo Ueda will hold a press conference at 15:30.