The Bank of Japan is set to raise interest rates to 1.25% at its September policy meeting, according to a new Reuters poll, accelerating its monetary tightening cycle beyond previous forecasts. The survey shows economists expect the BoJ to continue hiking to 1.75% by the second quarter of 2027, marking a faster pace than anticipated just months ago. The shift reflects mounting concerns over broadening inflation pressures across the Japanese economy and continued weakness in the yen, which has fallen sharply against the dollar this year. This hawkish pivot comes as the BoJ navigates away from decades of ultra-loose monetary policy, with Governor Ueda under pressure to defend the currency while avoiding damage to Japan’s fragile economic recovery. Traders should prepare for increased volatility in yen crosses and Japanese government bonds as the central bank moves closer to normalized rates.
FXnCO Insight
Position for yen strength and JGB yield increases ahead of September, with particular attention to USD/JPY downside targets as rate differential expectations narrow.
Source: FXStreet