Officials at the Bank of Japan are poised to consider raising the benchmark interest rate by 0.25 percentage points this month, according to informed sources, who also see the potential for one more rate increase later this year.
The sources indicate that the central bank may discuss lifting the policy rate to 1% during its policy meeting concluding on June 16. Officials also believe there is room for further rate hikes in the future, given that real interest rates remain low and inflation continues to face upside risks.
Due to the high degree of uncertainty surrounding the Middle East situation, officials intend to gather as much data and information as possible right up to the last moment before making a final decision. They noted that while there may be some dissenting voices against a rate hike, these are unlikely to sway the final outcome.
Another key focus of the upcoming meeting will be the central bank's latest plan for reducing its bond purchases. Sources said officials believe the necessity to continue tapering bond purchases at the current pace from April next year is diminishing.
The Bank of Japan's policy-setting meeting is scheduled for June 15-16. Based on overnight swap data, market participants have priced in an 88% probability of a rate hike at that time.
Following the reports, the Japanese yen strengthened against the US dollar, while Japanese government bond futures declined. The yen appreciated by as much as 0.3% against the dollar to 159.61. Government bond futures prices fell by up to 29 ticks to 128.67.
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