BOJ continues to reaffirm that inflation is here to stay, so what's stopping another rate hike?

The Bank of Japan has reiterated its view that inflation is persistent, prompting market questions about what would prevent a further policy rate increase. The transmission channel runs through the rate differential between Japan and other major economies: a tighter BOJ stance narrows the yield gap that has supported yen weakness, which can drive carry-trade unwinding, reduce yen-funded capital outflows, and pressure Japanese government bond yields higher as the policy path is repriced. Japanese equities, particularly export-oriented names sensitive to a stronger yen, and yen crosses such as USD/JPY would be most exposed, while domestic banks may benefit from a steeper yield curve. Traders will watch Japan's national CPI release and the Tokyo core CPI reading for evidence on whether underlying inflation is broadening, alongside the next BOJ policy meeting outlook and any shift in forward guidance from Governor Ueda.

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