BoJ Rate Hike on the Horizon, But Not a Tightening Campaign

Bank of Japan (BoJ) Governor Kazuo Ueda's upcoming press conference will be crucial in determining how much market enthusiasm survives into October. Goldman Sachs expects the BoJ to hike rates by 25 basis points to 1.25% on September 18, but not as part of an accelerated tightening campaign. The stronger yen is expected to have some appreciation due to expectations that the BoJ will deliver on a rate hike.

The market pricing for consecutive hikes in September and October appears aggressive without clear evidence of inflation overshoot. According to Goldman Sachs senior economist Tomohiro Ota, the BoJ's forward guidance and Ueda's assessment of whether policy has fallen behind the curve will be key signals. The important distinction is that this remains a measured normalization call.