BOJ Rate Hike Eyed as Yen Support

The Bank of Japan (BOJ) is likely to raise its benchmark interest rate to 1.25% at its meeting on September 17-18, according to Morningstar.

This move would support the yen's recent rise, which has been bolstered by a joint effort between the BOJ and the US Treasury Department to spend over $100 billion in support of the currency.

The BOJ prefers a gradual rate rise, as more than 70% of corporate loans and 75% of mortgages are on floating rates. This means that higher interest rates will add pressure to borrowers, with the end of cheap lending rates potentially causing difficulties for those with variable-rate debt.

Despite this, the BOJ is comfortable with the yen at around the 150 level, but a decline below this mark appears to be a larger concern. The unwinding of the carry trade may also continue to see yen sales, as foreign entities borrow in yen for global use becomes less attractive.