US-Japan Joint Intervention Sparks Expectations of 1.5% BOJ Rate by Next Spring

Following the joint foreign exchange market intervention by the United States and Japan late last month to buy yen, expectations are spreading in the market that the Bank of Japan will accelerate its interest rate hikes, the Nikkei reported today (August 10).

The newspaper reported that the market has begun pricing in a scenario where the Bank of Japan will raise interest rates next month, followed by additional hikes, bringing the benchmark interest rate from the current level of around 1.0% to 1.5% by next spring.

According to the probability forecasts for the timing of rate hikes released today by the think tank Todan Research, the likelihood of the Bank of Japan raising its policy interest rate by an additional 0.25 percentage point at next month's Monetary Policy Meeting stands at 67%.

The probability of a rate hike by the following Monetary Policy Meeting reaches nearly 100%.

Beyond that, the probability of an additional 0.25 percentage point hike by January next year reached approximately 80%, while the probability by March next year exceeded 100%.

This is interpreted as reflecting the view that a single rate hike is insufficient to cope with strong pressure to sell the yen.

In particular, as the U.S. and Japan jointly intervened in the foreign exchange market by buying yen late last month, points are being raised within Japanese monetary authorities that a "U.S.-Japan currency alliance" has been formed to prevent the weakening of the yen, the Nikkei noted.

Consequently, expectations are spreading that the Bank of Japan's monetary policy will also be tied to this alliance, accelerating rate hikes to counter the weak yen.

In fact, according to the summary of opinions from the previous Monetary Policy Meeting released by the Bank of Japan today, committee members made remarks regarding future rate hikes, such as "it could be faster than market expectations" and "it cannot be said that 'waiting carries less risk,' and it is necessary to speed up the adjustment of the degree of monetary accommodation."

Amid this, opinions also emerged that it has become difficult for Sanae Takaichi's administration to keep the Bank of Japan's rate hikes in check.

Kazuo Momma, an economist and former Bank of Japan executive director, pointed out that the Takaichi administration, which places importance on U.S.-Japan relations, will find it difficult to ignore the intentions of the United States, which desires stability in the yen exchange rate.

(File Photo: Yonhap News)
※ Please note: This article was translated by AI and may contain errors.