Former BOJ policymaker, Makoto Sakurai, indicates that the Bank of Japan may look to raise rates to 1% in the current cycle. A potential increase from 0.50% to 0.75% is anticipated in either May or June, followed by a pause.
Currently, traders do not expect the BOJ to make a move during these months due to the uncertainty surrounding Trump’s tariffs and their impact on the global economy.
The Roadmap For Rate Hikes
Sakurai’s remarks offer a pointed suggestion—the Bank of Japan is no longer ruling out a gradual tightening path. A move to 1% isn’t a foregone conclusion, but the roadmap is beginning to take form. The market expectations, however, appear misaligned—for now—with that vision. At present, we observe that most positions price in a longer hold, resting on the idea that external risks, particularly from North America, will keep Japanese policymakers on a cautious footing.
The reference to tariffs highlights the kind of externalities pressing on monetary decision-making. When policy is balanced against global trade dynamics, there is often a lag in response. Traders have become accustomed to a central bank that leans on the side of patience. Yet, when voices like Sakurai’s begin to speak of 1%, it should no longer be taken for granted that the current rate regime will remain untouched.
We see conditions forming for a possible change in forward guidance before action is taken. That’s a layer many market participants haven’t accounted for. Typically, a central bank that wishes to steer without startling will hint before it acts, particularly in Japan where telegraphed decisions are the norm.
Kuroda’s successor, and the broader policy board, are watching domestic inflation indicators carefully. Core CPI trends, especially when energy-adjusted, continue to push through the 2% level. If shelter and wage prints do not ease by April’s data release, we expect internal voices to gain influence advocating a tightening by early summer. It may begin with a 25bp hike to 0.75%—Sakurai’s signal fits this timeline neatly—but that would be followed by a wait, a breather for markets to absorb the change.
Liquidity And Volatility Considerations
From a tactical point of view, it does not seem prudent to sit anchored to the belief that global risks will indefinitely delay a policy shift. Tariff concerns are valid but have a decaying influence if other G7 economies continue to normalise rates. Reacting to soft inflation data from Europe while ignoring upward surprises at home could end in a misalignment of expectations and outcomes.
The JGB curve has begun to adjust at the front end, albeit modestly. This early steepening points to a re-pricing of short-term risk, led perhaps by those beginning to place weight on domestic rather than imported drivers. We believe that wider spreads across short-tenor swaps also suggest that some desks are hedging against near-term volatility—potentially into May.
Liquidity in Japanese interest rate futures remains patchy, especially when volatility surges unexpectedly. It is during these low-liquidity intervals that traders can find opportunity but also risk miscalibration. PnL swings enlarge chiefly when central bank surprises occur. To reduce this, carry-heavy bets should be reviewed and possibly lightened through early rolling or defensive spreads. Holding on the assumption of zero action until July could lead to squeezes.
Some implied vols are already edging higher in seasonal patterns—but pricing in more convexity now, albeit costly, may end up yielding more benefit than simply waiting for clarity out of Washington or Tokyo. Watch what the central bank says after the March and April meetings—forward guidance changes might signal more than they claim.
