With the central banks of Japan and the United States set to meet this week to decide monetary policy, markets are focused on a central bank week. While the probability of a U.S. rate hike is rising, a BOJ rate hike is also increasingly likely, with fiscal policy and crude oil trends emerging as key market focuses.
The central banks of Japan and the United States will hold meetings this week to decide policy. The U.S. Federal Reserve meets on the 15th–16th and the BOJ on the 17th–18th, with expectations of higher interest rates ahead strengthening. Market participants have almost fully priced in a U.S. rate hike, while the likelihood of a BOJ hike is also increasing.
The headline U.S. consumer price index rose 3.4% year on year in August, while the core index rose 0.3% month on month, and the probability of an FOMC rate hike is estimated to be close to 90%. Expectations are also spreading that there will be two to three 0.25 percentage-point rate hikes by year-end, making the rise in long-term interest rates a key market focus.
After President Trump announced plans to distribute $5,000 payments, estimates indicated that the total could exceed $1 trillion, intensifying pressure for higher interest rates amid concerns about an expanding fiscal deficit. In the crude oil market, WTI briefly topped $104, while supply trends along the Red Sea route drew market attention.
The BOJ is increasingly likely to raise its policy rate to 1.25%, with the overnight index swap market pricing in a probability of close to 98%. The impact on home mortgages and the direction of the yen may depend on the content of Governor Ueda’s press conference.