Institutions: With the probability of Japan hiking interest rates in September rising sharply, the market is closely monitoring officials’ remarks.

Bank of Japan (BOJ) officials will soon have multiple opportunities to either confirm or push back against the market’s increasingly aggressive bets on a September interest rate hike. Market pricing currently puts the probability of the central bank hiking rates in September at around 82%. Since the BOJ’s July 2024 rate hike decision drew fierce criticism, the Bank of Japan Governor has been emphasizing the need to strengthen communication with the market. The yen is another key factor prompting the BOJ to clarify its policy intentions. Daiwa Securities senior economist Kento Minami said: “The BOJ may not explicitly announce that its next rate hike will take place in September. Instead, officials may hint at the necessity of an early rate hike by highlighting upside inflation risks, which the market will view as confirmation of a September hike. However, if the BOJ repeatedly stresses uncertainty, the need for further data monitoring, or the need to assess the impact of its previous rate increases, the market may interpret this as a signal that interest rates will stay unchanged in September.” (Jin10)