The Bank of Japan (BOJ) is expected to raise interest rates by 25 basis points this week to 1.25%, a 31-year high, facing dual political pressure from both the US and Japan.

The Bank of Japan (BOJ) is expected to raise its policy rate by 25 basis points to 1.25% this week, the highest level in 31 years, an expectation fully priced in by the market. The current focus shifts to how Governor Kazuo Ueda will navigate dual political pressures from U.S. Treasury Secretary Scott Bessent and the camp of Japanese Prime Minister Sanae Takaichi to safeguard the central bank's independence.

U.S. Treasury Secretary Scott Bessent has publicly exerted pressure, stating that the BOJ has "asymmetric information" regarding its "next move," posing an unprecedented challenge to Kazuo Ueda's independence. Concurrently, the Sanae Takaichi camp, which favors reflation and low interest rates, may pressure the central bank through Minister of State for Economic and Fiscal Policy Nobuhide Kiuchi.

Affected by this, the Japanese Yen rapidly broke above 153 over the past week, returning to its highest level since February; the 10-year Japanese government bond yield rose to a 30-year high. Analysts point out that the rapid appreciation of the Yen paradoxically provides Kazuo Ueda with political cover to be "less hawkish."