The Bank of Japan decided to keep the main interest rate steady at 0.75% after the monetary policy meeting on Tuesday, but a clear division emerged among policymakers. Three of the nine board members saw an immediate rate hike as appropriate, marking the largest voting margin during Kazuo Oida's tenure.

Rising inflation expectations and declining growth forecasts
The bank revised its outlook, announcing that core inflation in Japan is expected to reach 2.8% during the current fiscal year. Compared to its previous forecast of 1% economic growth, the updated projections now anticipate a more modest increase of 0.5%. This adjustment is attributed to energy supply disruptions in the Strait of Hormuz and rising global energy costs, which have increased pressure on Japan's import-dependent economy.

Following these changes, markets began pricing in a 74% probability of a rate hike at the next monetary policy meeting on June 16. This sentiment aligns with the main expectations highlighted by Bloomberg News's recent analysis.