The BOJ prepares for a 25-basis-point rate hike to 1.25% on Friday, aiming to normalize policy while balancing inflation risks and market stability in a tightening global environment.
A BOJ rate hike to 1.25% narrows the interest-rate differential, strengthening the yen and putting downward pressure on USD/JPY.
BOJ tightening and expectations of further hikes push Japanese government bond yields higher and prices lower.
Soaring oil costs are cited as a key inflation driver behind the BOJ's tightening decision.
The Bank of Japan is expected to raise interest rates to 1.25% this Friday, marking a 31-year high as the central bank combats inflation driven by soaring energy costs. Governor Kazuo Ueda faces a delicate communication challenge to signal further tightening without destabilizing the bond market or triggering excessive currency volatility.
The BOJ is raising rates to combat persistent inflation pressures, which are being exacerbated by soaring oil costs and a weak yen that increases import prices.