Influenced by the Middle East conflict, economists and strategists at Bank of America have adjusted their forecast for the timing of the Bank of Japan's next interest rate hike, now predicting the central bank will tighten monetary policy in June instead of April. In an April 22nd report, Takayasu Kudo, Shusuke Yamada, Tomonobu Yamashita, and others wrote: "Given recent developments, including heightened uncertainty surrounding the Middle East, we now expect the BOJ to stand pat in April, with the next rate hike likely to occur in June." However, the report also noted: "If Middle East-related disruptions persist for a longer period, or if fiscal policy debates trigger instability in the rate market again, the possibility of a delay in the rate hike until July will increase." A rate hike in June would raise the Bank of Japan's policy rate to 1%. Bank of America expects the BOJ will "continue along a path of gradual interest rate hikes," provided a further deterioration in the Middle East situation does not cause a substantial negative impact on economic activity. Currently, swap traders are pricing in almost no chance of a rate hike in April, with their probability expectation for action in June standing at approximately 67%.
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