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On Wednesday, July 24, Reuters reported that sources said the Bank of Japan will consider raising interest rates next week and plans to continue to do so in the next few years.BondsThe purchase size was halved.

But sources told the media that next Wednesday's decision is not yet so certain. The Bank of Japan's committee generally agrees on the need to raise interest rates in the near future, but has not yet made a final decision on whether to raise interest rates next week or later this year.

"It is obvious that the Bank of Japan will raise interest rates in the coming months. It is just a matter of time," the source told the media.

The report also said that the reason why the outcome of the meeting remains uncertain is partly because the Bank of Japan sees no reason to act hastily amid moderate inflation.

According to a media survey, three-quarters of economists expect the Bank of Japan to remain on hold at its interest rate meeting next Wednesday and instead raise interest rates in September or October.

The report said the interest rate decision will ultimately depend on how long the Bank of Japan is willing to wait before consumption clearly recovers and inflation stabilizes above its 2% target.

Data showed that Japan's coreCPIThe year-on-year growth rate has reached 2.6%, exceeding the 2% inflation target set by the Bank of Japan. At the same time, the basic wage increase in May rose to the highest level in 30 years, indicating that the Japanese economy is steadily moving towards a virtuous cycle of "wage-inflation".

After the news was released, USD/JPY fell 30 points to a low of 154.27.

No interest rate hike, but balance sheet reduction?

Bloomberg News quoted an informed source yesterday as saying that there are still differences within the Bank of Japan regarding the July rate hike decision. The main views are divided into two camps:

Some officials suggested keeping the central bank on hold in July and wait until consumer spending data rebounds significantly before making a decision, which would also avoid giving the public an overly hawkish image of the central bank.

Other officials believe that current inflation is basically in line with expectations and are open to raising interest rates in July. However, given the many uncertainties in the future, they may miss the opportunity to raise interest rates.

UBS released a research report yesterday saying that the Bank of Japan will not raise interest rates at its meeting next week, but will propose specific measures to reduce its balance sheet.

UBS expects the Bank of Japan to reduce its bond purchases from 6 trillion yen a month to 4 trillion yen in the first year and further to 2 trillion yen in the second year. The reduction will bring the bank's holdings of Japanese government bonds to 5.3% of the total.GDPThe proportion of the two countries decreased by 13% and 17% respectively in two years.

In addition, UBS also said that the Bank of Japan's members may lower their economic and inflation forecasts for fiscal 2024 in their economic outlook report.

Given the weak first-quarter GDP results and the new energy subsidies provided from August to October to reduce electricity and gas bills, they are expected to lower their GDP forecast for fiscal 2024 from 0.8% to 0.6%, and their core CPI forecast from 2.8% to 2.4%, with limited revisions to their expectations for fiscal 2025 and 2026.

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