With the BOJ considering a rate hike in September, it may pursue a “dovish rate hike” depending on the FOMC outcome. The statement and views issued after the September meeting will be the focus.
Reports are mounting that, at its monetary policy meeting on 17–18 September, the BOJ is working toward raising the policy rate from its current level of around 1.0% to around 1.25%. However, the market has already priced in the 25-basis-point hike, making the future pace of rate increases the main focus.
Market attention has shifted from the September rate hike itself to the pace of rate increases thereafter and whether the possibility of a December rate hike will be signaled. The key issue will be whether future press conferences or statements indicate the prospect of additional rate hikes.
The BOJ's message could change significantly depending on the Federal Reserve's FOMC outcome and the ensuing currency-market reaction. If the Fed raises rates, the potential for increased pressure toward a stronger dollar and weaker yen is viewed as limited, while a decision to hold rates is seen as likely to intensify pressure toward a weaker dollar and stronger yen. Against this backdrop, the prevailing view is that the BOJ is likely to raise rates this time while remaining cautious about additional hikes, resulting in a “dovish rate hike.”