The Bank of Japan will hold a monetary policy meeting on 17 and 18 September. While the market is pricing in a 25bp rate hike, it will be watching closely for whether a proposal for a 50bp hike is submitted and for clues about the pace of future rate hikes. Governor Ueda Kazuo (植田和男) is expected to signal a willingness to continue discussions, with upside risks to inflation in mind.
The Bank of Japan is scheduled to hold a monetary policy meeting on 17 and 18 September, and several media outlets have reported expectations that the target for the uncollateralised overnight call rate will be raised from around 1.00% to around 1.25%. The market has priced in another 25bp rate hike and is expected to look for clues about the pace of future hikes and the terminal rate.
While we expect a 25bp rate hike, we are focusing on the views of the 9 members of the Policy Board. The market's attention is on whether a 50bp hike will be proposed by members regarded as hawkish and whether dovish members will vote against a rate hike.
Governor Ueda Kazuo (植田和男) is highly likely to signal a willingness to continue discussions at and after the next meeting, with upside risks to inflation in mind. Some market participants also believe that a proposal for a 50bp hike is unlikely, given the recent pause in the yen's depreciation. At the press conference, Governor Ueda Kazuo (植田和男) is expected to explain how the Bank assesses the effects of developments in the Middle East, expanding AI demand and exchange-rate volatility.
The market view that rate hikes will proceed at a pace of roughly one hike every 3 meetings, bringing the terminal rate to 1.75%, is becoming more widespread, although some observers say current pricing is excessive. We expect the Bank of Japan to deliver an additional rate hike early and around the middle of next year after deciding on a 25bp hike, but believe it will be important to assess the effects thereafter.