Key Takeaways

• Rates likely on hold: The Bank of Japan is widely expected to keep its benchmark short-term rate at 0.75% on April 28 — its third consecutive pause since the 25 bps hike in December.
• Hawkish undertones expected: Despite the hold, the BOJ may revise inflation forecasts upward in response to energy and shipping shocks tied to the Iran conflict.
• Analyst views split: ANZ leans toward a June hike, ING and OCBC see room for a surprise April move if inflation expectations accelerate.
• Ueda in the spotlight: Governor Kazuo Ueda’s tone on future policy will be critical, after recent dovish-leaning comments cooled April hike bets.
• Yen at risk: USD/JPY has stayed below the 160 threshold — a level that has historically triggered government intervention — making hawkish signals likely to support the currency.
• Nikkei vulnerable: Japanese stocks have hit record highs ahead of the meeting, leaving the market exposed to profit-taking if the BOJ strikes a hawkish posture.

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The Bank of Japan is broadly anticipated to leave interest rates untouched when its meeting wraps up on April 28, although the central bank could still strike a hawkish chord against the backdrop of mounting inflationary pressures and elevated oil prices.

According to Investing.com data, the BOJ is expected to maintain its benchmark short-term interest rate at 0.75%. The move would mark the third straight hold since the central bank delivered a 25-basis-point hike back in December.

While markets had originally penciled in another increase for April, a series of less hawkish communications from the BOJ has steadily diluted those expectations. The central bank flagged heightened uncertainty surrounding the economic fallout from the Iran war, fueling bets that policymakers will favor a wait-and-see stance.

That said, the BOJ is widely expected to maintain a broadly hawkish outlook, and could lift its inflation projections in response to the energy and shipping disruptions stemming from the Iran conflict.

Analysts Divided on the Path Forward

“Prior to the ongoing Middle East conflict, we thought there was a strong possibility of rates going higher this month, but recent communications from senior officials have stressed the potential downside risks to growth,” ANZ analysts noted.

The team added that a 25-basis-point hike in June now appeared more likely, with the BOJ expected to retain its tightening bias given sticky inflation and robust gains in Japanese wages.

Other analysts were less convinced about an April hold. ING analysts argued that a sharper-than-expected pickup in Japanese consumer inflation in March could still prompt an April move, particularly if “the BOJ gives priority to preventing inflation expectations from accelerating.”

OCBC analysts said their base case remained a 25-basis-point hike in April, even while acknowledging that current market pricing leaned more decisively toward a hold.

Beyond the rate decision itself, the spotlight will fall firmly on Governor Kazuo Ueda’s commentary regarding future policy moves. Ueda was viewed as somewhat dialing back expectations for an imminent hike in recent weeks, triggering a sharp reversal in market bets on an April tightening.

How Will USD/JPY React?

Building expectations for an April hold have weighed on the Japanese yen in recent weeks, although the USD/JPY pair has managed to stay below the 160 mark.

Breaches of that threshold have prompted government intervention in currency markets in the past, and the currency’s relative steadiness has also dampened expectations for an April hike.

Even so, the BOJ faces a delicate balancing act in keeping policy steady while preventing further yen depreciation, with Governor Ueda likely to deliver some hawkish hints to underpin the Japanese currency.

“Limited depreciation of the JPY since the Middle East conflict is another reason why the BoJ can refrain from raising interest rates at its upcoming meeting… JPY weakness would be adding to inflation pressures whilst the heightened risk of FX intervention would have raised the potential for a near-term rate hike,” ANZ analysts said.

How Will the Nikkei 225 React?

Japanese equities have surged in the lead-up to the BOJ’s decision, with the Nikkei 225 powering to a series of record highs on the back of strength in local technology, banking, and industrial names.

Some speculation around a possible de-escalation in the Iran war has also fueled gains, though markets still remain largely uncertain about the conflict’s eventual outcome.

Record-high valuations, however, leave the Nikkei vulnerable to potential profit-taking — particularly if the BOJ adopts a hawkish tone during the meeting. Building expectations of additional BOJ rate hikes could also weigh on Japanese stocks over the coming months.