MUFG’s FX team reports that expectations for a Bank of Japan (BoJ) rate hike in April have collapsed, with market pricing for tightening dropping from about 18 basis points at the start of April to nearly zero ahead of the upcoming BoJ meeting [1]. This shift comes despite Japanese inflation data for March surprising to the upside, with both headline and core nationwide CPI exceeding forecasts [1]. The BoJ is expected to maintain a cautious stance at the April meeting, citing uncertainty related to the conflict in the Middle East, but is also likely to signal concern about rising inflation and the risk of a persistently weak yen [1].
MUFG notes that the BoJ will publish updated forecasts, with inflation projections likely to exceed the 2.0% target—previously, the FY26 projection for core nationwide CPI was 1.9% and 2.0% for FY27 [1]. The FX team anticipates that the BoJ will hint at a possible rate hike at the next meeting, currently assuming a 25 basis point increase to 1.00% in June [1].
The divergence between a dovish BoJ and a more hawkish Federal Reserve could push USD/JPY above the 160 level, increasing the risk of intervention by Japanese authorities [1]. Last week, Finance Minister Katayama reiterated the threat of intervention, and previous actions such as the Fed checking rates in USD/JPY in January have helped curb speculative yen selling above the 160 mark [1].
MUFG emphasizes that the BoJ’s communication at the upcoming meeting will be crucial in preventing a sharp move higher in USD/JPY, as authorities seek to balance inflation risks and currency stability [1].
CONCLUSION
The BoJ is expected to maintain a cautious stance in April, but rising inflation and a weak yen are increasing pressure for a more hawkish outlook. Intervention risk remains elevated if USD/JPY breaches 160, making the BoJ’s communication pivotal for market direction. Market participants are closely watching for signals of a potential rate hike in June.