BoJ Hike Expectations Skyrocket as Japan's Economy Surges

The Japanese Yen has accelerated its rally on strong economic data, pushing expectations of a September Bank of Japan (BoJ) rate hike to near certainty.

Revised Q2 GDP showed the economy expanding 0.4% quarter-over-quarter, up from the preliminary 0.3%, while annualized growth was upgraded from 1.1% to 1.4%. Capital expenditure was also revised to a smaller 0.9% decline from the initially reported 1.2% fall.

The BoJ's normalization case is strengthened by strong wage data, with nominal cash earnings accelerating from 4.0% to 4.7% year-over-year in July, the strongest increase since 1997 and well above expectations around 3.8-3.9%. Real wages rose 2.4%, base pay increased 4.1%, and a cleaner full-time measure excluding bonuses, overtime, and sampling distortions still gained 2.7%.

A September hike to 1.25% is now priced at around 98%, while another increase to 1.50% by January is effectively fully discounted. Longer-dated pricing points to roughly 3.7 cumulative hikes by July 2027, making the debate less about whether the BoJ moves next week and more about the pace of what comes afterward.