Bank of Japan's Rate Hike Possibility in September at 70-90%

The Bank of Japan's decision on interest rates in September is expected to influence the yen and the flow of risk assets. The market reflects a 70-90% probability that the benchmark interest rate will be raised from 1.00% to 1.25% during the meeting on September 17-18. After raising the rate from 0.75% to 1.00% on June 16, the Bank of Japan kept it unchanged at the July meeting, and the proposal for a 1.25% increase by committee member Hajime Takata was rejected. Japan's core Consumer Price Index (CPI) rose by 1.9% year-on-year in July, while the wage growth rate in June was 3.4%. The Bank of Japan has indicated that the CPI growth rate could exceed 2% starting from the second half of the fiscal year 2026. The market is pricing in a 30 basis point rate hike at the September meeting and expects the rate to reach 1.9% by the July 2027 meeting. The yen carry trade involves borrowing yen at low interest rates to invest in high-yield assets, and an interest rate hike could increase borrowing costs. The Bank of Japan will announce the results of the meeting on September 18, and market attention will be focused on the interest rate decision and the strength of signals for further hikes.

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