BOJ Speeds Up Rate Hike Clock Amid Yen Weakness

The Bank of Japan is expected to raise interest rates twice this year, with a policy-rate increase next month followed by another in December. The BOJ will hold a two-day monetary policy meeting on Sept. 17-18 to discuss whether to raise rates again.

The odds of a September rate increase are above 80% in Tokyo markets, with some financial firms structuring bond strategies on the assumption that a September hike is certain. Markets are also weighing the possibility that the BOJ will follow a September move with another increase in December.

A main reason the BOJ is considering a faster pace is the yen's persistent weakness. The dollar-yen exchange rate nearly reached 164 last month, pushing the Japanese currency to its weakest level since 1986.

Voices within the BOJ have argued that inflation could rise more than expected and do significant damage to the economy unless the pace of rate increases picks up. Many policy board members also agree that the current six-month interval between hikes should be shortened.