Rate hikes are expected in both Japan and the US in September, with the pace of price and wage growth in Japan under particular scrutiny. Hawkish remarks from the US Fed and comments from the Bank of Japan's deputy governor have heightened attention on the likelihood of a September rate hike and the prospect of an additional hike.
At the Jackson Hole meeting, Fed Chair Warsh signaled that priority would be given to containing inflation, prompting markets to price in a September rate hike. The chair said there was more work to do if the Fed could not gain confidence that underlying inflation was moving toward the target, increasing the possibility of a September hike. As a result, the probability of a September rate hike implied by interest-rate futures has moved above 60%.
Meanwhile, Bank of Japan Deputy Governor Himino (氷見野) suggested in a speech in Saitama that the September monetary policy meeting was highly likely to be live. This has prompted speculation about a rate hike at the Bank of Japan's September meeting, and market expectations for a September hike remain firmly in place. The market is said to expect a rate hike to around 1.25% at the 17–18 September meeting.
The trend in inflation expectations is one factor behind the rise in long-term interest rates, and the focus will be on how policymakers respond as the 3% CPI trend moves toward the 2% target. Wage indices and CPI have moved in relative alignment, and some believe that the timing of an additional rate hike could be brought forward depending on how upcoming inflation indicators develop.