The Bank of Japan is expected to cut interest rates as soon as today or tomorrow, as pressure builds from inside the country and chaos mounts globally.
Inflation expectations in Japan rose again in the past three months, according to a BOJ survey published Friday, with 86.7% of households now predicting prices will go up within a year.
That’s the highest number since June 2024, and it’s higher than the 85.7% figure from December. These expectations are one reason the central bank had been leaning toward more hikes, not cuts. But that’s not happening anymore—not right now.
The same survey shows companies in Japan are finally starting to raise wages and prices, which the BOJ had been waiting years to see. The data shows the conditions for more interest rate hikes were starting to appear.
Trump’s tariffs stall BOJ hikes while inflation rises in Japan
But analysts say another factor is now standing in the way: Mr. President Donald Trump, who is back in the White House, launched a new round of tariffs, and that has reignited fears of a global recession.
That fear is one big reason the BOJ is now expected to cut rates instead of hiking them again, which you might recall crashed every single market on that fateful day of August 5th, 2024.
And right now, stocks and crypto are all down thanks to Trump. Bitcoin is still struggling to reclaim $100,000 and the S&P 500 keeps adding and wiping out trillions in minutes almost every market session. But interestingly enough, the stock market actually staged a historic performance on Wednesday, the second-best day in history.
Meanwhile, gold was out here breaking records amid the crash, but even it got a bit wobbly after Trump hit China with 125% tariffs, the largest ever.
Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities, explained that she’s now pushing back her forecast for the next BOJ rate hike by six months—to January 2026.
The BOJ had already started pulling back on its massive bond buying program last year. That program used to fund more than $10 billion a year for the Japanese government. Now that those purchases are being cut, the Ministry of Finance is being forced to hunt down new buyers to plug the gap—and they’re looking outside the country to do it.
Foreign buyers inch in while BOJ cuts bond purchases
The BOJ has been moving away from quantitative easing ever since Kazuo Ueda replaced Haruhiko Kuroda. Ueda raised rates for the first time in 17 years and announced that the central bank would start reducing its bond holdings.
In July 2024, the bank said it would cut bond buying by ¥400 billion every quarter, which would lower total holdings by about 7% to 8% by early 2026. These cuts focus mostly on bonds with maturities of ten years or less. Last month, for the first time, the BOJ said it would also start reducing its purchases of super-long bonds. A full review is coming in two months to see how the cuts are going.
Bond yields have reached levels that haven’t been seen since the 2008 financial crash, and that’s attracting some new attention. But if the Bank of Japan does cut rates soon, that will almost certainly bring a much-needed relief rally to stocks, bonds, cryptos, and gold.
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