Central bank meetings: Bank of Japan hawkish start

What happened: The Bank of Japan (BOJ) hiked its policy rate to 1% on April 26, the highest in 31 years, marking its second consecutive increase and the first since December 2022. This move aligns with the BOJ's accelerating policy normalization, started in late 2022. The decision comes amidst a surge in global energy prices and a languishing yen.

Market impact: The BOJ's hawkish stance pushed the yen higher, reversing some of its recent losses. Japanese equities, particularly banks and exporters, rallied on expectations of improved profitability from a stronger yen. However, the softening core inflation rate to 1.4% in April may temper further rate hike expectations, potentially impacting the BOJ's future policy trajectory.

What to watch next: Investors should closely monitor the BOJ's policy statement and press conference on May 19 for clarity on future rate hikes. Additionally, the release of Japan's April consumer price index (CPI) on May 27 will provide insights into inflation trends, which could influence the BOJ's monetary policy. Lastly, the yen's reaction to these events will be crucial in assessing the market's confidence in the BOJ's hawkish stance.