The Bank of Japan held its short-term policy rate at 0.75% during its April 27-28 meeting, but the internal debate was anything but steady. Three of the nine board members broke ranks to advocate for a near-term rate increase, making this one of the most contentious BOJ gatherings in recent memory.

The catalyst is familiar to anyone watching global energy markets: the ongoing conflict in the Middle East, particularly the Iran war, has sent oil prices climbing and forced the central bank to revise its core CPI forecast for fiscal 2026 upward to 2.8%. That is well above the BOJ’s 2% target, and it has some policymakers itching to act before inflation expectations become entrenched.

A board divided

One board member called for immediate rate hikes at upcoming meetings. Another member took a slightly more measured approach, suggesting increases every few months depending on how inflation data evolves.

The bond market certainly noticed. Following the release of the hawkish summary, the 10-year Japanese government bond yield surged to a 29-year high.

June is the market’s best guess

Polymarket data shows a 65.8% probability of a 25 basis point hike at the BOJ’s next meeting on June 15-16.

A 25 basis point increase would bring the policy rate to 1.0%. At 2.8%, the fiscal 2026 core CPI forecast overshoots the BOJ’s target by a wide margin.

What this means for investors

A BOJ rate hike in June would send ripples well beyond Tokyo. The Japanese yen has been one of the most actively traded currencies for carry trades, where investors borrow in low-yielding yen and invest in higher-yielding assets elsewhere. Every rate increase narrows that spread and makes the trade less attractive, which can trigger unwinds that affect everything from US Treasuries to emerging market equities to crypto.

Higher Japanese rates strengthen the yen, which reduces the incentive for Japanese institutional investors to chase yield in foreign assets. That pull-back of capital can create selling pressure across risk assets, including Bitcoin and other digital assets that have benefited from years of abundant global liquidity.