T. Rowe Price Fixed Income Department CIO: The Bank of Japan will eventually raise the benchmark interest rate to 1%

The US asset management company T. Rowe Price has stated that the Bank of Japan may ultimately raise its benchmark interest rate to 1%, putting upward pressure on yields in the world's second-largest government bond market. Arif Husain, Chief Investment Officer of Fixed Income at T. Rowe Price, commented on the Bank of Japan, saying: "My medium-term forecast is that if they can, the Bank of Japan will strive to raise the benchmark interest rate to 1%. Wage negotiations have somewhat emboldened them, giving them a reason to do so." Arif Husain is inclined to bet on a flattening yield curve, where short-term bond yields rise faster than long-term bond yields. Recent market trends and signals from the central bank have confirmed this bet. Swap traders predict that the likelihood of the Bank of Japan raising interest rates twice before the end of the year is over 90%. More directly, the market currently believes that the Bank of Japan raising interest rates by 25 basis points this Friday is almost a certainty. Arif Husain also agrees with this view. This marks another step towards monetary policy normalization by the Bank of Japan. Meanwhile, traders are becoming increasingly uncertain about the monetary policy paths of the Fed and the ECB. The yield on Japan's benchmark 10-year government bond climbed to 1.255% last week, its highest level since 2011. The Bank of Japan ended its aggressive monetary easing policy last year and has raised interest rates twice. The current policy rate is 0.25%. Regarding the Bank of Japan's path of interest rate hikes, Arif Husain stated: "They will continue at their current pace. If there's an opportunity, as long as domestic data in Japan supports it, they will accelerate the pace of rate hikes when needed." Furthermore, Arif Husain mentioned that if global shocks lead investors to seek safe-haven assets, the yen could rise to multi-year highs. He said: "I would never rule out the USD/JPY rate falling to 120 or 130 yen per dollar." He added that if the Bank of Japan takes a tough stance while other central banks are easing policy, this could potentially push up the yen, but it "could be a flight to safety" that would drive the yen to such levels.