Nomura warning: Bank of Japan's seemingly imminent rate hike could be disrupted by conflict with Iran.

Market indicators show that traders are generally betting that the Bank of Japan will raise interest rates in June or July, but an analyst at Nomura Group is cautious about this. According to prices in the forward market, traders believe there is a 75% chance of a rate hike in June and a 92% chance in July. However, Michio Saito of Nomura Capital Market Research Institute points out that due to the ongoing risk of conflict in Iran, which could lead to further increases in oil prices and put pressure on the Japanese economy that relies on energy imports, the Bank of Japan may be more cautious about raising rates. Saito, an executive researcher at the institute who previously served as a key bond policy official at the Japanese Ministry of Finance before 2023, said at a financial industry event on Wednesday, "The time to raise rates has come, or at least it is very close. But I'm not sure if the Bank of Japan's policy committee can smoothly proceed with the rate hike." Saito also noted that due to inflation concerns and the government's potential increase in fiscal spending, Japanese government bond yields may have risen excessively. He said that the benchmark 10-year Japanese government bond yield reached 2.8% on May 18, a new high since 1996. However, compared to the yield curve of other maturity government bonds, the current 10-year yield level is high, and the reasonable range should be around 2.0% to 2.5%. Saito warned that if the disruption in shipping in the Strait of Hormuz continues, concerns about the supply of crude oil and liquefied natural gas will further intensify. For Japan, "this could not only lead to price increases, but also potentially pose a risk of stagnation in economic activity itself."