BoJ Tighening Expected, USD/JPY Hinges on September Decision

The Bank of Japan (BoJ) is expected to tighten its monetary policy in the coming months, according to HSBC. Investors anticipate a change in how the BoJ responds to inflation and growth risks, with overnight index swaps implying around 75bp of cumulative hikes by April 2027.

Recent comments from US Treasury Secretary Bessent's meeting with BoJ Governor Ueda and BoJ Board Member Takata have contributed to this hawkish sentiment. Takata suggested that outsized rate hikes above 0.25% and back-to-back rate hikes are possibilities.

The 18 September BoJ decision is seen as a critical test, where investors may need clearer evidence of a policy shift. If the BoJ takes a more aggressive stance, it could trigger a downtrend in USD/JPY, according to HSBC's risk scenario.