Analysts from Daiwa Securities have indicated that due to heightened geopolitical uncertainty, market expectations for an immediate interest rate hike by the Bank of Japan have significantly diminished. This shift makes it easier for the central bank to justify a decision to maintain the current interest rate level. Currently, the overnight index swap market prices in only a 26% probability of a rate hike in April, a sharp decline from approximately 60% last week. The Japanese economy has demonstrated a degree of resilience, partially offsetting the adverse effects of deteriorating terms of trade. Monetary policy is currently at a stage requiring comprehensive assessment, careful scrutiny of underlying inflation trends, and consideration of impacts from external shocks.

Daiwa Securities economists further elaborated that the prolongation of current geopolitical risks has increased market volatility, directly weakening investor bets on a rate hike at the April meeting. This decline in expectations is not primarily due to a significant deterioration in Japan's economic fundamentals, but rather stems from external uncertainties dominating short-term pricing logic. The Japanese economy has shown resilience, partly countering pressures from worsening trade conditions, with relative stability maintained particularly in export-oriented industries and domestic consumption. However, oil price fluctuations and potential supply chain disruptions continue to pose risks of imported inflation, compelling policymakers to adopt a more cautious stance. The latest market data shows the Bank of Japan's current policy rate remains at 0.75%, with the next monetary policy meeting scheduled for April 27-28. Against this backdrop, pricing changes in the overnight index swap market clearly reflect investors' heightened sensitivity to external shocks. If the probability of a rate hike remains low, the Bank of Japan will gain greater policy flexibility, avoiding a hasty tightening of monetary conditions amid insufficient information and thereby creating room for observing subsequent data.

At a deeper level, this adjustment in expectations highlights the "data-dependent" nature of monetary policy at the current stage. The Bank of Japan needs to simultaneously weigh the sustainability of the domestic wage-price cycle against the transmission pathways of external shocks. If geopolitical risks are difficult to alleviate in the short term, maintaining the policy status quo will help stabilize financial market expectations and avoid additional drag on a fragile recovery from premature tightening. Furthermore, the Japanese economy's ability to withstand deteriorating trade terms provides a buffer for policy, reflected in relatively robust corporate investment sentiment and labor market performance.