According to APP, Sumitomo Mitsui Banking Corporation expects the Bank of Japan (BOJ) to raise interest rates to 1% this month. The institution believes that a 1% rate is still slightly below the BOJ's projected neutral interest rate range—a level that is neither restrictive nor stimulative, neither contractionary nor expansionary for the economy. Due to uncertainty in the Middle East, market expectations for a BOJ rate hike in April are weakening. However, if the rate hike is delayed, it will be difficult to justify given that inflation is already trending downwards. It is expected that Japan's inflation rate will further decline as food price growth slows. This analysis accurately captures the delicate balance currently faced by Japan's monetary policy between external geopolitical shocks and declining domestic prices.

As of April 15, 2026, the Bank of Japan's benchmark interest rate will remain at 0.75%, with its monetary policy meeting scheduled for April 27-28. Market expectations for a 25 basis point rate hike in April have fallen sharply from 60-70% at the end of March to approximately 14-15%, mainly due to the economic uncertainty stemming from the ongoing conflict in the Middle East. As a net energy importer, Japan is experiencing short-term increases in import costs due to high oil prices, but the slowdown in food prices has dominated the downward trend in inflation. The latest national CPI for February rose 1.3% year-on-year, down 0.2 percentage points from January, the lowest level since March 2022; Tokyo's core CPI rose 1.7% year-on-year in March, lower than market expectations and hitting a near two-year low, indicating that inflationary pressures are gradually easing.

Sumitomo Mitsui Banking Corporation 's assessment is based on a neutral interest rate framework: the current 1% target remains below the neutral range of "neither suppressing nor stimulating," and delaying rate hikes would raise concerns that the policy is "lagging behind the curve," especially given that inflation has already entered a downward trend. This view aligns with the Bank of Japan's previous hawkish communications, emphasizing the need to guide real interest rates towards a neutral level through gradual rate hikes to avoid a loss of anchor for inflation expectations.

Regarding economic growth, the GDP forecast for fiscal year 2026 remains in the range of 0.8%-1.0%. Weak external demand coupled with volatile energy costs is testing the resilience of the economy. If interest rates are successfully raised to 1% in April, it will strengthen the signal of price stability; conversely, a delay could amplify market concerns about inflation falling too quickly.

To provide a clear comparison of the current policy scenarios, the following table shows the latest data on key indicators and the impact of the two paths:

The above scenario shows that the Bank of Japan's decision-making is highly dependent on the evolution of geopolitical risks and the verification of inflation data, and the 1% interest rate hike target has become the focus of the market.

Editor's Summary : Sumitomo Mitsui Banking Corporation's latest forecast provides practical guidance for the April monetary policy meeting: Given the weakening market expectations for interest rate hikes due to Middle East uncertainty, the 1% interest rate target remains below the neutral range, and delaying a rate hike would face questions about its justification given the downward trend in inflation. This assessment aligns with the latest data on the current 0.75% benchmark interest rate, 1.3% CPI, and 1.7% Tokyo core CPI, highlighting the Bank of Japan's challenge in balancing external shocks with domestic price trends. This provides an important reference for global investors allocating yen assets.