1 week ago
BOJ Signals Could Shape Rising September Rate-Hike Bets
Investors are increasingly betting that the Bank of Japan will raise interest rates in September.
They are watching speeches by central bank officials for clues about what will happen.
Ryozo Himino will speak first, followed by other officials before the September 18 meeting.
Comments about rising prices or a weak yen could support the idea of a rate increase.
Comments about uncertainty or the need for more data could suggest that rates will stay unchanged.
The yen is still near 160 to the US dollar, so the BOJ must consider how its words affect the currency.
Japan and the United States recently worked together to support the yen.
If the BOJ does not raise rates, the yen could weaken sharply because many investors expect a hike.
Markets assign an estimated 82% probability to a Bank of Japan rate hike on September 18.
Deputy Governor Ryozo Himino will begin a series of BOJ appearances on Thursday.
Governor Kazuo Ueda and board members are expected to provide further clues before the policy decision.
Officials could reinforce hike expectations by emphasizing inflation risks, yen weakness and the need to act promptly.
A decision to hold despite strong market bets could trigger a sharp yen decline as traders unwind positions.
- Who
- Bank of Japan officials, including Ryozo Himino, Kazuo Ueda, Hajime Takata and Kazuyuki Masu, alongside market participants.
- What
- Officials are preparing to signal whether the BOJ is likely to raise interest rates at its September 18 policy meeting.
- Where
- The officials will speak publicly, including at events connected to Jackson Hole and a Group of 20 gathering in the United States.
- When
- Signals are expected from Thursday through September 10, ahead of the September 18 decision.
- Why
- The BOJ wants to manage market expectations, limit yen volatility and avoid surprising investors as September hike bets rise.
Arguments Supporting a September Hike
Arguments Supporting a September Hold
Inflation and currency risks
Arguments Supporting a September Hike
Officials could highlight upside inflation risks, yen-driven price pressures and the need to avoid falling behind the curve.
Arguments Supporting a September Hold
Officials could stress uncertainty, the need to examine more data and the effects of previous rate increases.
Market expectations
Arguments Supporting a September Hike
A hike would align with the roughly 82% probability currently implied by overnight-index swaps and could reinforce recent guidance.
Arguments Supporting a September Hold
Holding rates could push back against increasingly aggressive market bets and reduce the risk of validating expectations that may be premature.
Government and international pressure
Arguments Supporting a September Hike
The recent coordinated currency intervention and comments from US Treasury Secretary Scott Bessent have increased pressure for monetary policy to support the yen.
Arguments Supporting a September Hold
Prime Minister Sanae Takaichi's preference for monetary easing is viewed as a possible constraint on the BOJ's normalization path.
Key facts
- Implied hike probability
- About 82% in the overnight-index swaps market as of late Friday.
- Previous probability
- About 23% immediately before the BOJ's July policy meeting.
- Policy decision
- Scheduled for September 18.
- Yen level
- The yen remains near the psychologically important level of 160 per US dollar.
- Upcoming speakers
- Hajime Takata is scheduled to speak on September 2 and Kazuyuki Masu on September 10.
- Recent intervention
- Japan and the United States conducted a coordinated currency intervention late last month.
- Past market impact
- The BOJ's July 2024 rate increase contributed to a global stock-market meltdown, according to the report.
Quotes
Kento Minami
Senior economist at Daiwa Securities
“There is a good chance that they meet again before the next BOJ gathering. Prime Minister Takaichi would probably have to accept an early hike this time. She is a key reason markets remain skeptical about whether the BOJ can adopt a faster pace of rate hikes.”
livemint.com
“The BOJ probably won’t explicitly say the next hike will come in September. Instead, officials are likely to indicate the need for an early hike by emphasizing upside inflation risks. Markets will take that as a nod for September.”
livemint.com
Sources
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