The hawkish interest rate hike of the Central Bank of Japan led to the appreciation of the yen and the retracement of the gains in the Japanese stock market.

The Bank of Japan (BOJ) has raised its short-term policy interest rate from 0.25% to 0.5%, as expected, with a vote of 8 to 1. This is the highest level since 2008. The yen fluctuated and the Japanese stock market gave up its gains as traders awaited the post-meeting press conference by BOJ Governor Haruhiko Kuroda, which will be held at 2:30 PM Taiwan time.

BOJ raised the Interest Rate to 0.5%, expecting two more rate hikes this year

According to Bloomberg, the Japanese Central Bank (BOJ) voted 8 to 1 as expected to raise interest rates by 25 basis points, the highest level since 2008. It also raised its core CPI forecast for the 2025 fiscal year from 1.9% to 2.4%, stating that the economy is heading in the right direction. If the economic outlook materializes, it will have confidence to continue raising interest rates.

Bloomberg economist Taro Kimura pointed out that as companies pass on the increased labor costs through price increases, there are signs that the inflation rate will continue to be above the target of 2%. After the Japanese government passed a fiscal stimulus package in December, the political background is more conducive to tightening policies. The focus is now on Mr. Ueda's press conference for guidance on the next steps.

The latest outlook report from the Central Bank of Japan shows that the 2% inflation rate is now more secure, essentially giving the green light for more rate hikes this year to bring the policy closer to neutrality. Kimura expects the Central Bank of Japan to raise the target interest rate to 1.0% again in April and July this year, which is the lower limit of the estimated neutral interest rate in Japan.

Hawkish interest rate hike, yen strengthens

The Japanese yen initially weakened due to the interest rate hike, and the USD/JPY exchange rate rose to 156.40. Later, it was realized that the Bank of Japan would significantly raise its economic forecast, especially the core CPI. The actual interest rate in Japan is 'obviously lower', and if the outlook materializes, the Central Bank of Japan will continue to raise interest rates.

The US dollar fell against the Japanese yen, reported at 155.31 at the time of submission. With the yen strengthening, the Japanese TOPIX index's gains retreated to 0.2%.

However, the market is still closely watching for clues about the next steps of the Central Bank, as Governor Haruhiko Kuroda will hold a post-meeting press conference at 2:30 ( Taiwan time ).

(Will the possible interest rate hike by the Central Bank of Japan affect the bullish sentiment of Trump trades such as Bitcoin?)

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