BOJ Rate Hike May Not Boost USD/JPY as Expected

The Bank of Japan (BOJ) is expected to raise interest rates by 25 basis points, but the impact on the US dollar against the Japanese yen (USD/JPY) may not be as clear-cut. If BOJ Governor Ueda discusses a further rate hike or indicates that rates might rise beyond 1.75%, it could lead to a sharper decline in USD/JPY.

On the other hand, the expectation of a 25 basis point Federal Reserve (Fed) rate hike in September has increased by 87% after recent US inflation data. If both central banks raise rates by 25 basis points, the interest rate gap would remain broadly unchanged.

This could limit the immediate gains in yen, but the move in USD/JPY would then depend mainly on which central bank signals a faster pace of future tightening.