When Arguments for Rate Hikes and Against Them Balance Out: What Japan’s BOJ Faces on April 28

The case for raising interest rates and the case against it now carry almost equal weight in Japan’s economic landscape. Three weeks before the BOJ’s April 28 monetary policy decision meeting, the numbers that markets are showing symbolize this very balance.

The probability of an April rate hike stands at 31% as of 3:15 PM on April 14. Just four days earlier, on April 10, it was at 57%. A drop of 26 percentage points in less than a week. The figure, calculated by Toshin Research using interest rate swap market dynamics, tells a story of rapid shifting market sentiment.

Why has this happened? To understand, we must look at where the world’s attention is focused at this very moment.

A ceasefire in the Middle East is shaking the Strait of Hormuz. On the 21st, the expiration deadline approaches for a ceasefire agreement struck between Iran and related parties straddling the Strait of Hormuz. If this framework collapses, the world’s most critical oil shipping route will slip back into tension. A spike in crude prices could accelerate Japan’s import inflation.

At the same time, signs are emerging that the pace of US rate increases is slower than expected. The Federal Reserve lifted rates to 0.75% in March, but subsequent economic data suggests underlying weakness. If US interest rate increases moderate, a reversal of the yen carry trade (speculative trading backed by yen weakness) would occur, resulting in rapid yen appreciation that pressures Japan’s exporters.

Against this backdrop, the case for a 0.25% rate hike by the BOJ is clear. First, upward price pressures persist. Wage increases continue, and now is an opportune moment to solidify the foundation for emerging from deflation. Second, while major central banks worldwide have already raised rates, continuing monetary easing solely in Japan risks deepening the Japan premium—the discount applied to Japanese assets. Third, real interest rates remain negative, and normalizing the current state of excessive monetary accommodation is necessary.

Yet at the same time, the case for holding rates steady carries equal justification.

Geopolitical uncertainty—the message of the ceasefire’s expiration. The Iran-related ceasefire agreement expiring on the 21st is essentially a date that carries potential for “something to happen.” To demand an “irreversible policy judgment” merely a week later places the policymaker in an untenable position. It would be more natural for markets and the economy alike if the rate decision were made after confirming the materialization or non-materialization of this geopolitical risk by mid-April.

Beyond that, there is the lived reality of ordinary Japanese households. Families carrying variable-rate mortgages are already grappling with a near-future scenario of rising payments. Some argue that if rates are to rise, the household sector deserves time to adapt.

Furthermore, market interest rates have already moved ahead. Long-term rates have already exceeded 1.0%, and market participants have partially priced in a rate hike. Raising the policy rate in this environment may deliver only limited additional economic stimulus. Some observers argue instead that the risk of excessive tightening dampening growth looms larger.

What I sense is this: the simultaneous coexistence of mutually valid justifications. Both the case for raising rates and the case against carry intellectual and policy rigor. And within this, BOJ Governor Kazuo Ueda’s posture signals clear indecision.

In last week’s press conference, Governor Ueda stated that a rate hike in April was “not ruled out.” Yet he also hinted that the probability was “not high.” This ambiguity in language is not a sign of the Governor’s spinelessness but rather, I believe, a reflection of his recognition that his judgment could reasonably tilt either way. Both paths carry merit.

Many policymakers are expected to “make a decision.” But real economies sometimes present moments when “maintaining judgment in reserve” is the more responsible stance. Japan in April 2026 may be precisely such a moment.

What does waiting for the ceasefire’s expiration mean? I believe it reflects a calculation that only after the shape of geopolitical risk becomes clear will a rate hike decision acquire true legitimacy. Conversely, if nothing transpires after the 21st, a rate hike at an additional April meeting (reviewing May) or the subsequent June gathering would follow naturally. In essence, Governor Ueda is not optimizing the judgment of this moment—he is preserving the more information-rich judgment of the future.

This postponement strategy may frustrate markets. Stock prices remain volatile, currency movements unsettled, and household psychology frayed by variable-rate mortgage uncertainty. Yet viewed at the scale of the broader economy, the fact that a localized event like the ceasefire’s expiration wields such influence over Japan’s monetary policy reveals something profound: the interdependence of the global economy runs deeper than we imagine.

What occurs at the Strait of Hormuz in late April will determine Japan’s policy path. What we should observe is not the Governor’s final judgment but the shifts in the external environment that prompt it. Holding judgment in reserve is inseparable from heightening sensitivity to environmental change.

From the 21st to the 28th. In the span of one week, the geopolitics of the Middle East will collide with Japanese monetary policy. What emerges from that collision will not be a simple answer called a rate hike, but a deeper question—”What should Japan’s economic policy prioritize at this moment?”