Global Market: BOJ nears historic inflation milestone, shifts focus to rate hikes

The Bank of Japan is approaching a historic inflation milestone and has shifted its policy focus toward rate hikes, signaling a potential end to its long-standing ultra-accommodative stance. The primary transmission channel runs through the rate differential: a tightening BOJ narrows the gap with other major central banks, which can strengthen the yen and prompt unwinding of yen-funded carry trades. Japanese government bonds and the yen are the most directly exposed, with higher JGB yields reflecting repricing of domestic inflation expectations, while global risk assets may face spillover if carry-trade deleveraging accelerates. Traders should watch Japan's upcoming national and Tokyo core CPI releases, along with any signals from the next BOJ policy meeting on the timing and pace of rate increases.

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