BoJ Rate Hike Implied Probability Hits 84% as Inflation Accelerates

Commerzbank's Volkmar Baur says that rising inflation in Tokyo has strengthened the case for a Bank of Japan (BoJ) rate hike in September. The market is pricing an implied probability of around 84% for a move, but the BoJ has yet to give clear guidance on timing.

Baur argues that a delay would likely put significant pressure on the Japanese Yen (JPY). In August, inflation in the Greater Tokyo area stood at 1.9%, and excluding energy and fresh food, it was even 2.0%. The annualized rate of inflation over the past three months reveals an acceleration in inflation.

Baur notes that service sector inflation, at 0.39% in August, was at its highest level in nearly a year and has also shown accelerating momentum over the past three months.