Institutional outlook on the Bank of Japan's interest rate decision: A rate hike is inevitable; if forward guidance is not hawkish enough, the yen may come under pressure.

The Bank of Japan (BOJ) will announce its target interest rate today. Ahead of the decision, multiple institutions have released their outlooks on the BOJ’s rate resolution, summarized as follows: Reuters: Economists surveyed by the outlet expect the policy rate to reach 1.5% by the end of March next year, and hit 1.75% in the second quarter of 2027. Most economists believe the final rate will at least reach that level. BNP Paribas: It forecasts a 25 basis point rate hike to 1.25%, followed by further increases to 1.75% in December and March next year. The BOJ may be concerned about upside inflation risks, as companies could pass on rising costs for energy, metals and chips to consumers. Goldman Sachs: Today’s decision is "a done deal", with a possible additional rate hike as early as December. High energy prices, strong AI demand, a weak yen and loose fiscal policy could all push inflation higher than expected. Japanese government bond (JGB) yields still have room to rise, as current levels do not align with Japan’s economic resilience. TD Securities: It projects a 25 basis point rate hike to 1.25%, followed by 25 basis point increases each in December this year, April, July and October 2027, lifting the target rate to 2.25%. If the guidance does not factor in rate hikes in October or December, the yen could sell off sharply, falling to the 157-160 range. Mitsubishi UFJ Financial Group (MUFG): The market expects the BOJ to raise rates by 25 basis points and signal further hikes. If the central bank does not deliver sufficiently hawkish rate hike signals, the yen could weaken. However, since the market has already priced in a total of 90 basis points of rate hikes over the next 12 months, a cautious stance from BOJ Governor Kazuo Ueda could put pressure on the yen.