The Bank of Japan is expected to raise rates by 0.25% at its 17–18 September meeting, strengthening expectations that the pace of rate hikes will accelerate. Trends in long-term interest rates, the yen and fiscal risks are also attracting attention as contributing factors.
The prevailing view is that the Bank of Japan is highly likely to raise rates by 0.25% at its next Monetary Policy Meeting in September, and on 2 September, the probability implied by the OIS market was slightly above 100%. Expectations for a Bank of Japan rate hike strengthened in overseas markets, and the yen strengthened temporarily, with USD/JPY moving into the ¥158 range.
While some view a 0.5% rate hike as unlikely, there has also been an indication that expectations for the terminal policy rate are tending to be revised upward.
The rise in long-term interest rates has been attributed not only to higher inflation expectations but also to heightened fiscal risks, and there is a view that rising long-term interest rates could adversely affect the economy.
It has been explained that external factors, such as heightened tensions in the Middle East that could drive up oil prices and yen depreciation, may support an acceleration in the pace of rate hikes, and that the central bank's response will be affected by these factors.