BoJ Rate Hike Seen as Pre-emptive Move with Limited Yen Upside

Standard Chartered's economists Chong Hoon Park and Nicholas Chia expect the Bank of Japan to raise interest rates by 25 basis points (bps) in September, but with a gradual normalization path. The economists argue that the Japanese yen's recent positives are already priced in and see a low bar for negative surprises.

The Bank of Japan is expected to hike its policy rate to 1.25% at its September 17-18 meeting. However, Park and Chia maintain that outsized rate hikes or swift repatriation by the Government Pension Investment Fund (GPIF) are unlikely.

In their view, a September move would be a pre-emptive hike followed by a more patient phase of policy normalization. As a result, they project USD/JPY to return to the upper half of the 155-160 range in Q4.