T. Rowe Price Fixed Income Department CIO: The Bank of Japan will ultimately raise the benchmark interest rate to 1%
Arif Husain, Chief Investment Officer of the Fixed Income Department at T. Rowe Price, predicts that the Bank of Japan will strive to raise the benchmark interest rate to 1%. He pointed out that wage negotiations provide a rationale for interest rate hikes and tend to flatten the bond yield curve. The market expects the Bank of Japan to raise interest rates twice before the end of the year, with a 25 basis point increase almost certain this Friday. The yield on Japan's benchmark 10-year government bonds has risen to 1.255%, the highest since 2011. Husain also mentioned that if a global shock occurs, the yen could rise to multi-year highs
According to the Zhitong Finance APP, T. Rowe Price, an American asset management company, stated that the Bank of Japan may eventually raise the benchmark interest rate to 1%, putting upward pressure on yields in the world's second-largest government bond market. Arif Husain, Chief Investment Officer of T. Rowe Price's fixed income department, mentioned regarding the Bank of Japan: "My medium-term forecast is that, if possible, the Bank of Japan will strive to raise the benchmark interest rate to 1%. Wage negotiations have somewhat encouraged them and provided them with a reason to do so."
Arif Husain tends to bet on a flattening yield curve, where short-term bond yields rise faster than long-term bond yields. Recent market movements and signals from the central bank confirm this bet. Swap traders expect a greater than 90% chance that the Bank of Japan will raise interest rates twice before the end of the year.
More directly, the market currently believes that the Bank of Japan is almost certain to raise rates by 25 basis points this Friday. Arif Husain agrees with this view. This marks another step towards the normalization of monetary policy by the Bank of Japan. Meanwhile, traders are increasingly uncertain about the monetary policy paths of the Federal Reserve and the European Central Bank.
The yield on Japan's benchmark 10-year government bonds climbed to 1.255% last week, the highest level since 2011. The Bank of Japan ended its aggressive monetary easing policy last year and has raised rates twice. The current policy rate is 0.25%.
When discussing the Bank of Japan's rate hike path, Arif Husain stated: "They will maintain the current pace. If there is an opportunity, as long as there is domestic data in Japan to support it, they will accelerate the pace of rate hikes when needed."
Additionally, Arif Husain mentioned that if global shocks trigger investors to seek safe havens, the yen could rise to multi-year highs. He stated: "I would never rule out the possibility of the USD/JPY exchange rate falling to 120 or 130 yen per dollar." He added that if the Bank of Japan takes a tough stance while other central banks are easing policies, this could likely push up the yen, but "it could be a safe-haven behavior" that drives the yen to such levels