Central Banks Take Center Stage as Markets Weigh Rate Hikes and Middle East Tensions

This week's financial markets are set to navigate the impact of two key central bank events: the U.S. Federal Open Market Committee (FOMC) meeting and the Bank of Japan's monetary policy decision meeting.

The Nikkei Stock Average dropped nearly 1,000 points last week due to escalating Middle East tensions and rising interest rates in both Japan and the U.S., which cooled investor sentiment. Shingo Ide of NLI Research Institute attributed the decline to these factors and warned that even if the Fed holds rates steady, the market could interpret this as a sign of central bank bowing to presidential pressure, raising doubts about its independence.

The FOMC meeting begins on September 15th U.S. Eastern Time, while in Japan, attention is focused on the Bank of Japan's monetary policy meeting, which starts on September 17th. The market expects a rate hike from the BOJ, and if it matches expectations, extreme downward pressure on stock prices could be avoided. However, Ide noted that attention will focus on how aggressively Governor Kazuo Ueda signals his stance on future rate hikes.