Following remarks by U.S. Treasury Secretary Bessent, the market priced in a September Bank of Japan rate hike and expectations spread that the pace of rate hikes could accelerate. However, some still believe that the likelihood of a large 0.5 percentage point hike or consecutive hikes remains low.
Triggered by remarks from U.S. Treasury Secretary Bessent in late August and early September, the market came to view a September Bank of Japan rate hike as almost certain. The market’s pricing of a September hike has strengthened against a backdrop of persistently high WTI crude oil prices and the yen’s depreciation.
On 30 August, following a meeting with the Bank of Japan governor, Bessent publicly expressed support for decisive action on Japan’s markets and monetary policy, strengthening market expectations that the pace of rate hikes would accelerate from September onward. The interest rate swap market is said to have priced in an 80-90% chance of another rate hike later this year even after a September hike.
Some market participants have begun to anticipate consecutive hikes in September and October, or a large 0.5 percentage point hike at a single meeting. There is also a view that the terminal rate priced in by the market could rise to above 2%.
As the market priced in an acceleration of the Bank of Japan’s rate hikes, the yen briefly turned sharply from depreciation to appreciation and has been trading in the ¥154 range. The market appears to regard Bessent’s remarks as a powerful boost, bringing about a major shift in the outlook for Bank of Japan policy.