The Federal Open Market Committee and the Bank of Japan's monetary policy meeting will take place next week, putting interest rate trends in both countries in focus. While rate hike expectations prevail for the FOMC, a hold remains possible. At the Bank of Japan, a rate hike is being discussed, but views are divided, with many believing that a significant hike will be difficult.
Next week's schedule includes the US FOMC on the 15th and 16th, with the decision due to be released in Japan time, followed by the Bank of Japan's monetary policy meeting on the 17th and 18th. As concerns grow over an unwinding of yen carry trades, markets will focus on how the interest rate gap between the US and Japan changes through the two meetings.
Rate hike expectations for the US FOMC remain dominant, although some continue to see a hold as a possibility. Market pricing has shifted in response to the employment report, while pricing in the long-term interest rate market has remained volatile.
US PPI, released on the 10th, accelerated to +5.4% year on year, while core PPI rose +4.6% year on year, also accelerating. Core CPI, released on the 11th, is expected to have risen approximately +0.3% month on month, but rate hike expectations strengthened again after the release.
At the Bank of Japan, Governor Ueda's press conference is expected to focus on any indication of future rate hikes. Markets are pricing in a 22% probability of another rate hike in October and approximately a 90% probability of a rate hike by December, but the view that a significant hike will be difficult to achieve is becoming more widespread.
Depending on the FOMC's SEP release, an upward revision to the policy rate outlook is widely expected, which could prompt a stronger dollar and weaker yen. Conversely, rising expectations for continued Bank of Japan rate hikes could trigger yen appreciation, and developments surrounding both meetings could have a major impact on the markets.