Overnight index swaps imply a 70% chance that the Central Bank will raise interest rates by the end of July

After the Central Bank unexpectedly reduced its bond purchases during its routine this week, investors’ bets that the bank will raise interest rates by the end of July have risen. Overnight index swaps imply a 70% chance that the Central Bank will raise rates by the end of July, up from around 50% earlier this month. The shift in market positioning comes at a time when the yen is under downward pressure, with large interest rate differentials between the US and Japan leading to a weakening of the yen. In addition, there is a growing expectation that the Central Bank may announce a broader reduction in bond purchases at its June meeting before raising interest rates in July.