BoJ Rate Hike Odds Soar to 80% as JPY Recovery Remains Elusive

Market expectations have shifted towards an increased likelihood of a Bank of Japan (BoJ) rate hike in September, with odds rising to 80% according to Bloomberg. This sharp increase has been attributed to support from the Takaichi administration, which is seeking to enhance the effectiveness of JPY-buying intervention.

Despite this shift in expectations, the Japanese Yen (JPY) has reacted modestly, leading analysts to suggest that a sustained recovery will require clearer commitment to faster policy normalisation. The BoJ's concerns about inflationary pressures from a weak JPY have aligned with the government's goals, potentially paving the way for further rate hikes.

However, it remains unclear how much appetite the government has for additional rate hikes beyond September or October. Analysts at OCBC caution that intervention risks will likely cap USD/JPY near 160, rather than a more substantial increase in the JPY's value.