Concerns over yen depreciation were raised at the US-Japan summit, putting the possibility of a BOJ rate hike and the market reaction in focus. The possibility of an October rate hike and the course of any intervention are also under discussion.
Concerns over yen depreciation were raised at the US-Japan summit, and the finance authorities disclosed the substance of the discussion concerning the yen's weakness. The US side expressed concern that yen depreciation could hinder efforts to curb the trade deficit with Japan, as well as over developments in long-term interest rates, while Japan had already indicated its stance on curbing yen depreciation ahead of the talks.
The BOJ decided to raise interest rates on the 18th, but the split vote led the market to increasingly view the decision as dovish, resulting in periods of yen selling. Perceptions of the interest-rate differential were also affected by comparisons with the Federal Reserve.
Foreign-exchange intervention and further rate hikes have been cited as the remaining options, and interest-rate swap market pricing indicates that the probability of an October rate hike is slightly above 30%. Attention is focused on the possibility of coordinated intervention by Japan and the United States and the significance of the policy meeting.
The focus going forward is the BOJ's policy meeting on 29–30 October, when the possibility of another rate hike will again be questioned depending on price trends and domestic and overseas conditions.