"Super Hawk" Bank of Japan to take the stage on Wednesday? Economists: Possible rate hike and announcement of QT plan

According to Zhitong Finance, Haruhiko Kuroda, the Governor of the Bank of Japan, will announce the Quantitative Tightening (QT) plan on Wednesday and make a decision on the policy interest rate. At that time, the outside world will closely monitor his actions; his measures may cause turbulence in the global financial markets. A survey shows that out of 48 economists, about 14 predict that the Bank of Japan will raise the interest rate from the current 0 to 0.1%, with almost no one ruling out the risk of this move. As for QT, the central bank is expected to outline plans to reduce monthly bond purchases over the next one to two years.

With the market reaching a consensus on the Bank of Japan's possible reduction in bond purchases, the focus will shift to interest rate policy. Sources familiar with the matter said earlier this month that some Bank of Japan officials are open to the idea of raising interest rates as inflation trends align with their forecasts. Others believe that the central bank staying put is an option as relevant departments are waiting for more data to confirm signs of a rebound in consumer spending.

The Bank of Japan is scheduled to announce its policy decision around 11:00 am Beijing time on Wednesday, followed by a press conference in the afternoon. A few hours after the Bank of Japan's meeting, the Federal Reserve will send out new signals on its interest rate outlook early Thursday Beijing time, bringing about dual fluctuations in policy news that could shake the yen exchange rate in any direction. Prior to the meeting, the yen exchange rate has been fluctuating, rising from a 38-year low to a two-month high. Market speculation suggests that the widening interest rate differential between Japan and the United States is set to narrow, driving the yen exchange rate higher.

Bloomberg economist Taro Kimura stated, "The Bank of Japan may take two major steps towards policy normalization - raising interest rates again and starting to reduce bond purchases."

Here are some key points to watch:

If there is an interest rate hike, it implies that Kuroda's stance may be more hawkish than what most observers of the Bank of Japan have imagined so far, potentially sparking speculation of another rate hike before the end of the year.

In recent weeks, the yen has rapidly appreciated against the US dollar. The rate hike in July would allow the Bank of Japan to argue that it is not constrained by a weak yen when making interest rate decisions.

The Japanese Ministry of Finance is suspected of conducting consecutive interventions in the exchange rate earlier this month. Therefore, it is expected that even if Kuroda decides to stay put, he will express a tough stance at the meeting, hinting at the possibility of a rate hike.

The market unanimously believes that the Bank of Japan will reduce its monthly bond purchases from the current 6 trillion yen to around 5 trillion yen (32.6 billion US dollars), ultimately halving the purchase amount over two years. Any data significantly different from these expectations could shake the bond market.

In the case of a rate hike, the Bank of Japan may be seen as succumbing to political pressure. Toshimitsu Motegi, Secretary-General of the ruling Liberal Democratic Party, and Taro Kono, Japan's Minister for Digital Economy, have recently called on the Bank of Japan to tighten policy to support the yen and curb inflation It is expected that the Bank of Japan will adjust its quarterly inflation expectations to reflect Japanese Prime Minister Fumio Kishida's decision to reinstate public utility subsidies this summer. This may lead to a slight downward revision of this year's inflation forecast, while potentially raising expectations for next year