I’ve been closely following the Bank of Japan’s latest developments, and it feels like the market has substantially cut back its expectations for a rate hike in April. According to data from the overnight index swap market, the probability of a rate hike this month has already fallen to below 10%, while expectations for a June rate hike have risen to about 70%. What is the logic behind this shift?

As it turns out, the intensification of the situation in the Middle East has directly disrupted the Bank of Japan’s plans. The U.S.-Iran conflict has pushed oil prices higher, which is a major problem for Japan, a country that relies heavily on energy imports. On the one hand, inflationary pressure is increasing; on the other hand, the economic outlook has become uncertain, making life difficult for the central bank. Market analysis generally holds that the Bank of Japan may raise its inflation forecasts while lowering its economic growth forecasts. In this kind of contradictory situation, moving ahead with a rate hike becomes even harder.

But that doesn’t mean the central bank will be completely silent. Reports suggest that BOJ Governor Kazuo Ueda and others may send hawkish signals in the meeting—after all, the authorities’ top priority right now is to stabilize the yen. Just look at the yen’s exchange rate trend to see how tense things are: the USD/JPY is already nearing the 160 level. In addition, Finance Minister Kaya Shun gets issued the toughest warning recently, saying that Japanese authorities are prepared to intervene in the market at any time.

That said, honestly, relying only on intervention makes it hard to reverse the trend at its root—it can only temporarily slow the pace of depreciation. Some analysts have even said outright that the yen could very well fall below 160. If the BOJ truly doesn’t hike rates in April, there are predictions that the yen could weaken to around 163. With the geopolitical situation this complex, it’s difficult to judge what comes next, but in the short term, expectations for yen appreciation don’t seem likely to materialize. In this environment, it should be interesting to closely watch the performance of related assets on Gate.