Swiss Patek Wealth Management senior Asian chief economist Li Zhenman stated that despite the significant uncertainty about Japan's neutral interest rate level, the Bank of Japan will gradually proceed with further rate hikes, bringing the policy rate closer to the nominal neutral rate (as suggested by the Bank of Japan in April). The previous meeting strengthened the bank's confidence in this normalization path forecast. On July 31, the Bank of Japan held a monetary policy meeting and decided to adjust the current 0% to 0.1% policy rate to 0.25%. This rate hike is the first since the removal of the negative interest rate policy in March this year. In addition, the Bank of Japan also decided to gradually reduce the scale of Japanese government bond purchases, reducing the current monthly purchase size of 5.7 trillion yen to around 2.9 trillion yen for January to March 2026. It is understood that in recent months, the yen has significantly depreciated against the US dollar, hovering near its lowest level in 38 years as of early July. Influenced by the rate hike by the Bank of Japan, the yen sharply appreciated against the US dollar, briefly breaking through 150 yen per US dollar, appreciating by more than 4 yen in one day to its highest level in over four months. Li Zhenman stated that the main reasons for the Bank of Japan's rate hike at the meeting include: 1) economic growth and inflation developments broadly meeting their expectations; 2) measures to increase wages have gradually expanded (thus increasing confidence in a benign cycle between wages and inflation); 3) accelerated import prices posing upside risks to prices (in the context of the yen's weakness in recent months).