"Rate hikes on the way? Bank of Japan board member sends hawkish signal, market expects action in April"

```

BOJ board member Kazuyuki Masu delivered a speech on Friday, clearly stating that further rate hikes are needed to complete the normalization of monetary policy, adding momentum to the market’s growing expectations for a hike.

According to Bloomberg, Masu addressed local business leaders in Ehime prefecture, western Japan, saying, "I am convinced that continued rate hikes are necessary to complete Japan’s monetary policy normalization." He emphasized that rate hikes will help end the situation where Japan’s rate policies diverge from other major economies, and pointed out that timely and appropriate hikes are crucial to keeping the underlying inflation rate below 2%.

Masu’s remarks continue the hawkish tone the Bank of Japan has maintained since its January policy meeting, boosting market expectations for a rate hike before April to 74%. Overnight index swap market pricing shows that most economists previously predicted the next hike would happen in June or July, but current market expectations have moved up significantly.

This was Masu’s first public speech since joining the BOJ’s nine-member decision-making committee in July last year. Previously, he described his policy stance as right in the middle between hawkish and dovish, a stark contrast to the hawkish signals in his Friday speech.

Significant Shift in Policy Stance

Masu’s remarks mark a major shift in his policy inclination. As a former senior executive at Mitsubishi Corporation, a major Japanese trading company, he expressed a neutral stance when joining the BOJ board, but his speech on Friday clearly displayed hawkish tendencies.

He pointed out that Japan’s divergence from other major economies in the direction of raising or lowering rates needs to change. Although he didn’t elaborate, the interest rate gap between Japan and other economies has long been considered a key reason for the yen's continued weakness, which increases import costs and puts pressure on companies and households.

Masu emphasized that the key moving forward is to ensure the underlying inflation rate remains below 2% through timely and appropriate rate hikes. He also noted that rate hikes must not be too large, so as not to undermine the moderate rise in wages and inflation.

He stated that current price movements are "very close" to the BOJ’s 2% target, and as food inflation is expected to moderate, the underlying inflation rate will become a key indicator in determining policy direction. Data released Friday showed that in 2025, the share of food spending in Japanese household expenditure is at a record high, which limits consumers’ ability to spend on discretionary items.

Following Masu’s speech, the yen was trading near 156.82 against the dollar. The BOJ has recently indicated growing concerns about the impact of currency weakness on inflation, as the yen remains weak.

According to overnight index swap market pricing, traders estimate the probability of the BOJ hiking rates before April is about 74%. The BOJ will announce its next policy decision on March 19. After last December’s rate hike, most economists initially forecasted the next move would be in June or July, but recent hawkish signals from the central bank have pushed market expectations forward.

Risk disclaimerThe market is risky; investment should be made cautiously. This article does not constitute personal investment advice and does not consider the specific investment objectives, financial situation, or needs of individual users. Users should consider if any opinions, views, or conclusions in this article fit their particular circumstances. Investments made based on this article are at your own risk. ```