Xinhua Finance, Beijing, May 21 (Cui Kai) Recently, the Bank of Japan unexpectedly reduced the scale of bond purchase in its routine operation, which triggered the market's bet on its interest rate increase in July. At present, the market's expectation for the Bank of Japan to raise the benchmark interest rate in July has risen from about 50% at the beginning of this month to about 70%.
This change took place against the background of downward pressure on the yen, mainly because of the huge interest margin between Japan and the United States. In addition, more and more people expect that the Bank of Japan may announce a broader reduction in the scale of bond purchases at its June meeting before the potential interest rate hike in July.
Although the market expects that the Bank of Japan will work to normalize interest rates and support the strengthening of the yen, investors are still divided about the outlook after July.
Some market indicators show that traders only expect about one further interest rate increase this year in addition to the Bank of Japan's action in March.
However, a former chief economist of the Bank of Japan said that the Bank of Japan may raise interest rates as many as three times this year. In view of its "excessive" loose interest rate setting, there is still a lot of room for adjustment, the next interest rate increase may be as early as June.
As the market bet that Japan will raise interest rates as soon as possible to support the yen. Recently, the yield of benchmark Japanese government bonds climbed to the highest level since 2013, which was also the level when the former governor of the Bank of Japan, Tohihiko Kuroda, began to implement aggressive monetary easing policies. Japanese 20-30-year bond yields also climbed to the highest level in a decade, encouraging Japanese investors to invest more money in the domestic bond market.
Japanese Chief Cabinet Secretary Lin Fangzheng said that bond yields are determined by a variety of factors, and hoped that the Bank of Japan would continue to implement appropriate policies. However, Morgan Stanley analysts said in a report that if Japan's inflation pressure continues, by the end of 2024, the yield of Japanese 10-year government bonds may rise to 1.25%, forcing the Bank of Japan to raise interest rates by a larger than expected rate.
Other analysts said that if Japan's annual economic growth rate remains above 3% and wage growth remains strong, the yield of 10-year government bonds is more likely to be around 1% at the end of the year.
At present, the policy trend of the Bank of Japan is still full of uncertainties, and the market's expectations for its future interest rate increases are also constantly adjusted. In this context, investors need to pay close attention to the policy dynamics of the Bank of Japan in order to adjust investment strategies in a timely manner.
