DBS Sees BoJ Hiking Rates by 25 Bps in September

DBS Group Research analysts Taimur Baig and Chang Wei Liang expect the Bank of Japan (BoJ) to hike rates by 25 bps at its September 17-18 meeting. The analysts point to solid Gross Domestic Product (GDP) growth, stronger wages, and inflation near the 2% target as reasons for the expected rate hike.

The BoJ's decision is seen as a hawkish move, but DBS rules out an outsized 50 bps increase or back-to-back hikes at every meeting. This view takes into account the potential market impact of large policy surprises, particularly after the unexpected rate hike in July 2024 triggered significant JPY carry-trade unwinding and global financial market jitters.

The Bank's decision is based on the final 2Q GDP data, which confirmed continued economic growth at an on-trend pace of 1.4% QoQ saar, or 0.9% YoY, in 2Q.