Nomura: Middle East Risk May Disrupt BOJ Rate Hike Path as Market Prices 75% Chance for June

According to Michio Saito, senior economist at Nomura Capital Market Research, Middle East tensions could complicate Japan's path to rate hikes. Swap market pricing shows traders expect a 75% probability of a June rate increase and 92% by July. However, Saito—a former key Japanese Finance Ministry official—warned that potential Iranian conflict could further drive up oil prices, weighing on Japan's energy-dependent economy and making the central bank more cautious. "The timing is here, or at least very close," he noted, "but I'm uncertain whether the policy committee's road will be smooth." Japan's 10-year government bond yield briefly hit 2.8% on May 18, the highest since 1996, which Saito said is elevated; a 2.0%–2.5% range would be more appropriate.
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