The market calmly faces Trump returning to the White House, and the Bank of Japan moves towards raising interest rates.

In a relatively calm response from global financial markets to Trump's return to the White House, the Bank of Japan is expected to raise interest rates to their highest level since 2008 this Friday. Sources revealed earlier this month that Bank of Japan officials believed it was highly probable to raise interest rates unless Trump brought too many negative surprises upon taking office. In addition, sources indicated that Japanese government officials would also support the actions of the Bank of Japan this week after Trump's inauguration ceremony. If the Bank of Japan announces the interest rate hike as expected by the market on Friday, it will be the third rate hike in less than 12 months. Prior to March of last year, the Bank of Japan had not raised rates for 17 years. Currently, the Bank of Japan is steadily moving towards monetary policy normalization, while the Federal Reserve and the European Central Bank are contemplating pausing their easing cycles. However, even after raising rates, Japan's borrowing costs will still be the lowest among developed countries. Bank of Japan Governor Haruhiko Kuroda's envisioned path for further rate hikes may be a key focus on Friday. Given the global market turmoil caused by the unexpected rate hike in July last year, Kuroda's communication with the market will continue to be closely watched. Early Tuesday, the Japanese yen was the only currency among the Group of Ten (G10) currencies to rise against the U.S. dollar, as traders bet that Trump's first wave of tariff attacks would not deter the potential interest rate hike by the Bank of Japan. Chotaro Morita, Chief Strategist at All Nippon Asset Management Co., stated, "The Bank of Japan will raise rates. There was no major shock on Trump's first day in office, and the stock market did not collapse." Ahead of this week's policy meeting, the Bank of Japan has sent unusually clear signals indicating that it may take action to raise interest rates. Bank of Japan Deputy Governor Masayoshi Amamiya stated in a speech to Yokohama business leaders last Tuesday that the Policy Board would discuss the possibility of a rate hike this week. Bank of Japan Governor Haruhiko Kuroda also hinted at considering a rate hike at the meeting this week and suggested increased confidence in wage growth, reinforcing market expectations for an interest rate hike by the Bank of Japan. Overnight index swaps indicate that the likelihood of the Bank of Japan raising rates on Friday exceeded 90% as of Wednesday morning, up from 41% at the end of December. Meanwhile, a survey released last week showed that around 74% of the 53 economists surveyed predicted that the Bank of Japan would raise rates by the end of this week's meeting. In the event that the Bank of Japan does not take action despite these expectations, its signaling strategy may face significant criticism and could once again trigger market turmoil. Meanwhile, as the policy interest rate approaches the ultimate rate anticipated by Bank of Japan policymakers, observers are more likely to seek signs of further rate hikes. Hirofumi Suzuki, Chief FX Strategist at SMBC Nikko Securities, stated, "The baseline scenario may be an increase every six months. The Bank of Japan is not expected to raise rates quickly." Sources also revealed that the Bank of Japan may raise its quarterly inflation expectations at this week's meeting. This would indicate that after living costs have remained near the central bank's target level for the past three years, they are expected to continue at this level over the next two years. Hours before the Bank of Japan announces its rate decision, Japan's December national CPI will be released. The market currently expects Japan's December national CPI to rise 3.4% year-on-year, with core CPI rising 3%. Japanese Prime Minister Fumio Kishida has not yet finalized his spending plan. His minority government needs enough opposition support to ensure the annual budget is passed in March. The Bank of Japan's rate hike this week will fundamentally eliminate the complexity of its monetary policy negotiations. Leaders of major Japanese companies have also expressed no opposition to the possible rate hike. Masakazu Tokura, Chairman of Japan's largest business lobby, the Keidanren, stated that it is normal for the Bank of Japan to review its interest rate policy given that the inflation rate has been above 2% for some time. These developments may come as a relief to the Bank of Japan, which faced strong opposition when it raised rates in the early 21st century. At the post-rate decision press conference, Kuroda may try to retain flexibility in his choices while cautiously advancing the Bank of Japan's efforts towards the normalization of monetary policy for the first time in nearly 20 years. Kuroda acknowledges the challenges of communication with the market due to the uncertainty of the Bank of Japan's final rate. While 90% of economists believe the economic conditions in Japan justify a rate hike this month, many also argue that the weakness of the yen is a major factor driving the increase in borrowing costs, and this will continue in the future when rates rise. However, traders' expectations for a weaker yen following the Bank of Japan's rate hike this week have hardly changed, as the interest rate differential between Japan and the United States remains significant. Analysis of data from the Tokyo Financial Exchange, the Japan Financial Futures Association, and the U.S. Commodity Futures Trading Commission by the media shows that total yen short positions held by individual investors in Japan, as well as by overseas hedge funds and asset management companies, have increased by 54% to $13.7 billion. Daisuke Karakama, Chief Market Economist at Mizuho Bank, stated, "Even if the Bank of Japan raises rates, the momentum for a stronger yen may be limited, as ending rate cuts has become a focus for the Federal Reserve. The market will sooner or later demand another rate hike by selling the yen, and this is likely."