The Bank of Japan may delay raising interest rates due to the yen's rapid appreciation, according to BMI.

• BMI advised the Bank of Japan to adopt a more cautious approach to hiking interest rates after the recent global market turmoil and to avoid rapid appreciation in the yen.
• BMI's analysts predict that the BoJ will adopt a more conservative stance and increase interest rates by 25bps to 0.50% this year, which is lower than their previous projection of 50bps.

Fitch Solutions' BMI stated in a recent note that the Bank of Japan will adopt a more cautious approach to raising interest rates to prevent a rapid appreciation in the yen following the recent global market turmoil.

BMI's analysts predict that the BoJ will adopt a more conservative stance and increase interest rates by 25bps to 0.50% this year, which is lower than their previous projection of 50bps, according to a note released on Wednesday.

The unwinding of the popular yen carry trade, resulting from interest rate hikes by the BOJ, caused a sharp sell-off in global markets last Monday.

Japan's stock market experienced its worst day since 1987, with a 12% decline, but has since recovered and surpassed its pre-Monday levels.

In recent years, the trading strategy of carrying trades, which involves borrowing money in a low-interest rate currency and investing it in higher-yielding assets, has been gaining popularity.

The strengthening of the yen could lead to higher volatility in its stock market.

Amid market instability, BOJ's Deputy Governor Uchida Shinichi stated that the bank would not increase its policy rates.

The BOJ is predicted to only increase interest rates by 25 basis points in 2025 due to the Fed's expected rate cut of about 200 basis points to 3% next year. This means the BOJ will have limited ability to raise rates, as it could lead to a stronger yen, according to BMI.

The note stated that the interest rates will end in 2025 at 0.75%, which is below the BoJ's terminal rate of 1.00%.

On July 31, Japan's central bank increased its benchmark rate to approximately 0.25% from its previous range of 0% to 0.1%. In March, the BOJ raised its policy rate for the first time in 17 years.

Since Aug. 5, the yen has weakened by approximately 2% and is currently valued at 147.42 yen to 1 USD.