(Bloomberg) — Bank of Japan officials will soon have several opportunities to validate — or push back against — increasingly aggressive market bets on a September interest-rate hike, starting with a key speech on Thursday.
Deputy Governor Ryozo Himino kicks off a series of public appearances by top BOJ officials before the next policy decision on Sept. 18. Governor Kazuo Ueda, who probably won’t speak at this week’s gathering of officials in Jackson Hole, is likely to follow Himino with a press briefing after a Group of 20 gathering in the US next week.
As of late Friday, pricing in the overnight-index swaps market implied a roughly 82% probability of a September hike, more than tripling from about 23% immediately before the BOJ’s July policy meeting. Ueda has emphasized thorough communications with the markets ever since he was heavily criticized for a decision to hike rates in July 2024 that appeared to catch some traders off guard.
The yen is another critical factor compelling the BOJ to telegraph its intentions. If the BOJ decides to hold policy settings at a time when the market is betting on a hike, there’s a risk Japan’s currency would fall steeply as traders scramble to unwind their positions.
Having learned its lesson after the July 2024 move, which helped precipitate a global stock market meltdown, the BOJ clearly prepared markets ahead of each of its past three rate increases. That adds an incentive for BOJ watchers to parse every word from officials for nuances pointing to whether they are comfortable with current pricing — or want to dial it back.
“The BOJ probably won’t explicitly say the next hike will come in September,” said Kento Minami, senior economist at Daiwa Securities. “Instead, officials are likely to indicate the need for an early hike by emphasizing upside inflation risks. Markets will take that as a nod for September.”
Bets on a September move surged after the US and Japan conducted a rare coordinated currency intervention late last month, pulling the yen back from levels close to its weakest in about four decades. With the currency still hovering near the psychologically important 160-per-dollar mark, the BOJ has limited room to sound dovish without risking renewed depreciation.
That makes the subtle signals particularly important. A repeated emphasis on uncertainty, the need to examine more data or to assess the impact of previous hikes could be interpreted as a signal pointing to a hold in September.
By contrast, greater emphasis on upside inflation risks, yen-driven price pressures or the need to avoid falling behind the curve would likely reinforce expectations for an early move.
Investors will get further opportunities to test the September thesis with speeches by board members Hajime Takata on Sept. 2 and Kazuyuki Masu on Sept. 10.
Takata, the board’s most hawkish member, is likely to reiterate the need for prompt tightening. He was the sole board member who dissented from the hold last month — voting instead for a hike.
Masu, a former Mitsubishi Corp. executive, will be closely watched after his remarks ahead of the June meeting helped strengthen speculation about the rate increase that followed. His speech will be the last scheduled appearance by a board member before the decision.
BOJ watchers are also watching for a possible meeting between Ueda and Prime Minister Sanae Takaichi, whose preference for monetary easing has created the impression she might be a potential constraint on the BOJ’s normalization path. The two have met three times, roughly once every three months, most recently on May 22.
“There is a good chance that they meet again before the next BOJ gathering,” Minami said. “Prime Minister Takaichi would probably have to accept an early hike this time. She is a key reason markets remain skeptical about whether the BOJ can adopt a faster pace of rate hikes.”
Opposing another BOJ hike could carry an additional cost for the government. Japan and the US conducted their first coordinated currency intervention since 1998 after the BOJ’s July meeting, potentially increasing pressure for monetary policy to follow through rather than leaving intervention to shoulder the burden of supporting the yen.
Speaking on CNBC earlier this month, Treasury Secretary Scott Bessent said policy would need to follow up on the intervention and that he was “highly confident” that would happen. Bessent said he has known Ueda for 15 years and trusts the governor to do what is needed.
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