Bank of Japan interest rate decision on Tuesday: Can BoJ hike short-term rates? How can it impact Indian stock market?(Agencies)AI Quick ReadBank of Japan interest rate decision: Bank of Japan (BoJ) will announce its policy decision on Tuesday, 28 April, at a time when the US-Iran conflict has shot up crude oil prices and raised risks of inflation flare-up.
Meanwhile, the US Federal Reserve will also announce their policy decisions this week on 29 April.
The BOJ will most likely keep the interest rates steady even as speculations have been rife that the central bank may hike rates as it pursues its latest monetary tightening goal.
After keeping interest rates near zero for 17 year, the BoJ started monetary tightening in 2024, when it raised rates to a range of 0 to 0.1% from minus 0.1% earlier.
Subsequently, the central bank raised rates on 31 July 2024, on 24 January 2025 and on 19 December 2025. At present, BoJ maintains its key short-term interest rate at 0.75%.
The BoJ looked set to hike its short-term interest rate at the start of this year. However, the US-Iran war has deteriorated the growth-inflation dynamics of the country. Focus will be on what Governor Kazuo Ueda says about the impact of the West Asian conflict on the country's economy.
"Amidst the heightened uncertainty surrounding the tensions in West Asia and the consequent energy crisis, BoJ is expected to hold rates in the upcoming policy meet," said VK Vijayakumar, chief investment strategist at Geojit Investments.
Vijayakumar noted that despite the expected pause, BoJ is likely to remain hawkish in the light of the potential impact on inflation from oil price hike.
"Once the West Asia crisis is resolved another 25 bp hike in interest rate is likely from BoJ. In this scenario Japanese investors would prefer to continue investing in Japan rather than in other emerging markets. Therefore, the present trend of portfolio flows to Japan is likely to continue," said Vijayakumar.
According to Harshal Dasani, Business Head at INVasset PMS, the BoJ is widely expected to keep its policy rate unchanged at 0.75% and this is likely to be interpreted as a hawkish hold rather than a policy pause.
Dasani said the focus will be firmly on forward guidance, especially around inflation sustainability and the timing of the next rate move.
"With a weak yen, elevated energy prices and lingering cost pressures, the BoJ is unlikely to signal any shift away from gradual normalization. A hold at this stage suggests policymakers are seeking more data clarity, with the possibility of a rate move in the coming meetings still very much alive," said Dasani.
Ravi Singh, Chief Research Officer (Research) at Master Capital Services, also believes the BoJ may keep the interest rates unchanged at 0.75%.
Singh highlighted that Japan’s core CPI is expected to be at 1.9% in FY26, while broader core consumer prices rose 2.7% which is still above BoJ’s target of 2%.
Moreover, Singh underscored that the biggest influencing factor for the Japanese markets are the reliance on energy imports because they import oil which makes them vulnerable to any price or supply shocks. This is the reason why in policy meetings, the focus remains on the forward guidance because it also dictates heavily how the yen moves against the dollar.
According to Dasani, a steady BoJ is supportive in the near term for emerging markets like India, as it reduces the risk of a sharp unwind in yen-funded carry trades and helps maintain global liquidity stability. This is particularly relevant given India’s sensitivity to crude prices and foreign flows.
However, Dasani added that the risk lies in the forward path.
"Any signal of an imminent rate hike could trigger capital rotation toward Japan, tightening liquidity for emerging markets and keeping Indian equities and bonds susceptible to intermittent volatility," said Dasani.
According to Singh, for an emerging market like India, a BoJ neutral or steady stance could be in broader terms a good sign because with any rate decision India wouldn’t be directly affected.
"Aspects like low Japanese yields will increase yen carry trades which in turn helps the liquidity in the emerging markets which means more funds flowing into emerging market assets like bonds and equities," said Singh.
"If the BoJ accelerates the rate hike it could lead to unwinding of carry trades which can lead to FII outflow which can affect INR again making it reach the highs of 95. If the tone remains dovish it is a supportive outlook for India because it would help the bond and equity market," Singh added.
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