Bank of Japan raises rates to highest in 30 years as inflation stays above target

Bank of Japan has lowered the policy rate, but still lower than neutral rate of interest, which will not be enough to normalize the inflation, nor will resolve the low demand of yen. While there are assumptions of unwinded carry trade, and possible demand of Japanese government bond by private investors, these scenarios are unrealistic by political and macro economic factors. The Takaichi regime of Japan is still promoting fiscal easining and the recent budget was accepted by the budget reflecting those views, ignoring concerns from the bond vigilantes. In fact the 10 year bond has already reached 2.0% interest rate, and will continue to rise as more pressure is expected from the Trump administration for motivations of foreign exchange policies. The inflation of Japan is still around 3.0% and requires higher policy rate. Meanwhile, other countries are on the course of raising the policy rate in 2026, which advantage of bond interest rate will lower the demand of Japanese government bond from foreign bond investors. Therefore, private investors purchasing Japanese government bond at this time will likely suffer losses by these factors. Meanwhile, this will also push trends of short position for Japanese government bond to continue through channels of futures, options, funds, and ETF/ETN, as well as bond vigilantes also aware of scenarios which the bond rating may be lowered for the Japanese government bond resulted by irresponsible fiscal easing policies by the Takaichi regime, while the primary balance will become less sustainable with further tax cuts in line. It is not ideal for considering long position for Japanese government bonds, while further raise in policy rate may follow, decreasing the value of Japanes government bonds, forcing a lock in for investors, and foreign exchange will also be in bad shape with continuous low demand of yen.