Bank of Japan Deputy Governor Ryozo Himino has called for timely interest rate increases to keep inflation from overshooting the central bank's 2% target. Markets responded by pricing in an 85-90% probability of a September hike, against a backdrop of rising core inflation and a weak yen.
Bank of Japan Deputy Governor Ryozo Himino, speaking in Saitama on August 27, said timely interest rate increases are needed to prevent inflation from overshooting the BOJ's 2% target. The remarks pushed traders to reprice the odds of a hike at the bank's next meeting.
Overnight index swaps now price an 85-90% probability that the BOJ will raise rates at its September 17-18 meeting. The policy rate currently sits at 1%, after the BOJ raised it from 0.75% in June.
Inflation data drive the urgency
Himino's warning follows fresh data. Japan's core Consumer Price Index for July climbed 1.8% year-over-year, the fastest pace since January. The yen remains weak, pushing up import costs, while energy prices have climbed amid geopolitical instability in the Middle East.
Himino stopped short of explicitly endorsing a September hike, saying instead that the BOJ needs — according to Himino — "robust discussions at each policy meeting" on the appropriate pace of tightening.
Japan's exit from negative rates
The BOJ held negative interest rates from 2016 until early 2024, when it ended the policy. The rate hike path since then has been gradual by design, and some economists now forecast a potential terminal rate of around 1.75%.
Bond markets brace for a move
Japanese government bond yields would likely push higher if the BOJ delivers a September hike, a shift that matters because Japanese investors are among the world's largest holders of foreign bonds, particularly US Treasuries. A meaningful move in domestic yields could therefore trigger repatriation flows that ripple through global fixed income markets. Yen carry trades, which blew up in mid-2024, remain sensitive to shifts in rate differentials.
Source: Crypto Briefing
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