The yen briefly rose to the ¥152-per-dollar range as speculation emerged in the market over a 50bp BOJ rate hike. Ahead of next week’s policy meeting, market participants expect discussions on further tightening to continue, with a 0.25% move remaining the base case.
The yen maintained its upward trend, rising to the ¥152-per-dollar range in trading on the 8th. It reached its highest level since February and has gained more than 4% against the dollar, the largest increase among the G10 currencies. The market expects the BOJ to center its September meeting on a 25bp rate hike, while an outright 50bp increase is also under discussion.
The BOJ is scheduled to hold a monetary policy meeting on 17–18 September. According to sources familiar with the matter, the prevailing view is that there is currently little appetite for a 50bp move. Although price pressures are increasing, some have pointed out that rapid tightening could have a significant impact on the market.
Strength is evident in wage and growth indicators, with the revised GDP figure showing an upward revision for the April–June quarter and nominal wages in July reaching a high level. At the same time, higher import costs driven by yen weakness and movements in crude oil prices are keeping inflationary pressures elevated, and the BOJ continues to take a cautious approach to rate hikes.
The prevailing market outlook calls for a 25bp hike in September and one more hike by year-end. Some also argue that a further acceleration to 0.5bp should be avoided because it could overly strengthen the market’s impression. The BOJ may continue with gradual rate hikes while assessing the response to inflation risks and the impact on the economy.