US CPI was in line with market expectations, but inflation concerns remain and expectations for a September US rate hike have receded. Expectations for a September Bank of Japan rate hike have risen, and the barter theory of coordinated intervention is being discussed.
In the US market in August, CPI was broadly in line with market expectations and expectations for a Federal Reserve rate hike receded. However, inflation concerns remain entrenched, with the impact of higher crude oil prices also keeping markets on alert. Employment-related indicators at times pointed to slower wage growth, while the outlook for long-term interest rates remains uncertain.
Debate continues over the nature of the vague inflation concerns. Against the backdrop of slower wage growth and price trends, market participants are exploring the factors keeping long-term interest rates at elevated levels. Views are divided over the relationship between the inflation outlook and interest rates.
While expectations for a Federal Reserve rate hike have receded, the outlook for a September Bank of Japan rate hike is likely to remain elevated. The yen options market is pricing in a Bank of Japan rate hike at its September policy meeting, while Kyodo News and Mainichi Shimbun reported that yen-buying intervention by Japan and the United States had an impact. The possibility of a Bank of Japan rate hike has increased, with implementation at the September or October policy meeting viewed as the base case.
Views on the Bank of Japan's independence and the background to its monetary policy remain topics of debate, but more market participants now believe that the possibility of a rate hike at the September policy meeting has increased. A series of reports, including comments by Suehiro Toru (末廣徹), reflects market participants' focus on the effectiveness of coordinated intervention and the Bank of Japan's next move.