ECB, BOJ Poised to Hike 25 Bps as Iran War Drives Bond Yields Higher
Updated
Updated · continuumeconomics.com · May 27
ECB, BOJ Poised to Hike 25 Bps as Iran War Drives Bond Yields Higher
7 articles · Updated · continuumeconomics.com · May 27
June meetings at the ECB and BOJ are now seen delivering 25-basis-point rate hikes, extending the developed-market bond selloff as investors reprice for tighter policy.
Rising yields since the U.S.-Iran war began are being read less as entrenched inflation fears than as a shift from expected easing to tightening, with flatter 10-2 year curves in the U.S. and Germany reinforcing that view.
The ECB’s June 11 decision is the nearer catalyst: a hike would likely lock in expectations for a second move and push euro zone government yields higher across the curve, with spillover into other developed markets.
Japan remains the outlier because its 10-2 year JGB curve has steepened, reflecting fiscal-easing worries and BOJ quantitative tightening estimated at nearly 6% of GDP in 2026; a June hike could come with a slower QT pace.
Straits of Hormuz talks are the main swing factor for global yields, with a credible reopening by July expected to ease energy prices, reduce pressure on central banks and calm bond markets.
Is Japan's rate hike a cure for inflation or a poison for its fragile economic recovery?
With fiscal policy pulling one way, can the BOJ's rate hikes alone steer Japan's economy to a soft landing?
As Japan's cheap money era ends, are global markets prepared for the unwind of the yen carry trade?
Bank of Japan Eyes June 2026 Rate Hike to 1.0% as Inflation and Middle East Conflict Drive Policy Shift
Overview
As of late May 2026, markets and economists widely expect the Bank of Japan (BOJ) to raise its key policy rate from 0.75% to 1.0% at the June meeting. This anticipated move is seen as a crucial step in the BOJ’s efforts to normalize monetary policy and tackle persistent inflation. The groundwork was laid in April when the BOJ kept rates steady, but a notable 6-3 split among board members—the largest under Governor Kazuo Ueda—signaled growing internal pressure for change. The upcoming decision reflects both the need to address inflation and a shift toward policy normalization after years of ultra-low rates.