As expectations for a US rate hike retreat, the probability of a September hike by the Federal Reserve has declined. The BOJ is considering a rate hike in September or October, while the difficulty of managing policy on the assumption that the effects of intervention will be maintained is becoming apparent.
In US markets on 13 August, expectations for a Federal Reserve rate hike retreated against the backdrop of weak July PPI data, while equities remained subdued as inflationary pressures had not completely disappeared. Although wage data, the CPI and PPI were all softer, long-term interest rates remained elevated, prompting observers to point out that disinflation was unlikely to become a driving theme in the equity market.
Upward pressure on long-term interest rates is expected to gradually weaken, but the probability of a September rate hike implied by FF interest-rate futures fell to 35.0%. The number of rate hikes expected by year-end is projected to decline to about 0.91 from the previous day, and the shift toward a dovish stance is still considered limited despite the weak data.
As for the timing of a rate hike, reports said that the BOJ is considering raising its policy rate as it looks ahead to holding a Monetary Policy Meeting in September or October. Market attention focused on the limits of coordinated intervention by the Japanese and US governments, and views spread that expectations for a BOJ rate hike were becoming more realistic.
Behind this development is the difficulty of adjusting financial conditions while maintaining the effects of BOJ intervention. It was suggested that this, together with the government’s supportive stance, could influence the decision on the next rate hike.