BOJ Rate Hike in September Takes Center Stage as Yen Intervention Fades

The joint US-Japan currency intervention, launched weeks ago to stabilize the yen, is losing its effectiveness. The yen's recent slide has resumed, last trading at 159.28 per dollar after rebounding from a near-40-year low of 164.

Market attention has shifted from short-term defense of the exchange rate to the Bank of Japan's (BOJ) next rate hike, which is expected in September. The BOJ's benchmark rate stands at just 1%, while the Federal Reserve's rate range is 3.5% to 3.75%. Goldman Sachs analysts predict a 50% probability of a 25-basis-point rate hike at the BOJ's September meeting.

Citigroup analysts forecast a 'policy regime shift' in which the BOJ adopts a more aggressive hiking pace starting in September, pushing rates to 2% by the end of next year. However, Mizuho Securities analyst Masayuki Nakajima cautions that the bar for a September move remains extremely high, as concerns about the impact of higher rates on mortgage-holding households and small-to-medium enterprises persist.