Bank of Japan Considering First Interest Rate Hike in Years, Potentially Signaling End of Negative Rates Era

The Bank of Japan is considering lifting interest rates for the first time in years at its upcoming meeting, which could impact global markets. Swaps price a 57% chance of a hike.

Rising Japanese interest rates previously led to a similar pace of rising rates globally when yields rose over the summer.

The Japanese yen has strengthened recently as expectations for BOJ policy tightening have increased. Further yen strengthening seems likely with greater hike odds.

Stock market trends in the US and Japan have moved similarly in periods when BOJ policy has shifted, like when 10-year JGB yields peaked in October.

While a BOJ hike could signify Japan's deflation risk is over, predicting the outcome is difficult. But the days of negative rates there appear numbered, whether in March or later meetings.