ANZ's Zaman Sees BOJ Hikes Starting in September

ANZ's Mahjabeen Zaman expects the Bank of Japan (BOJ) to begin raising interest rates in September. This aligns with increasingly aggressive market bets on a September hike, a sentiment reinforced by recent comments from US Treasury Secretary Scott Bessent. Bessent has publicly stated his belief that Japan's government and central bank will take action to strengthen the yen, and when asked if this meant rate hikes, he noted that the market is already pricing that in. These remarks followed meetings between Bessent, BOJ Governor Kazuo Ueda, and Japanese Finance Minister Satsuki Katayama, where Bessent reportedly advocated for further rate increases.

Market expectations for a September hike have solidified, with some analysts suggesting this could lead to more frequent rate increases, potentially quarterly, rather than the current pace of approximately twice a year. The weak yen, which recently stood around 159.75 against the US dollar and near the 160 mark that often triggers intervention, has been a significant concern. It has driven up import prices and broader inflation, creating economic challenges for Japanese policymakers. The slow pace of BOJ rate hikes has been blamed for widening the interest rate divergence between Japan and the US, contributing to the yen's weakness.

Oxford Economics (OE) has also revised its forecast, now expecting the BOJ to raise rates in September, December, and April of next year, bringing the benchmark rate to 1.75%. OE attributes this accelerated pace to yen weakness and rising inflation expectations, noting that the joint US-Japan yen-buying intervention on July 31 has intensified pressure on the BOJ to act. US officials, including Secretary Bessent, have made it clear that continued support for the yen is contingent on Japan taking more decisive action on monetary policy, with Bessent reportedly calling for an end to "Abenomics"-era stimulus policies. The economic and political costs of not meeting market and US expectations are seen as too high for the BOJ and the Japanese government to ignore.