The Japanese yen has gained significantly in the last 20 minutes after the Bank of Japan announced that a further interest rate hike is possible this year, despite political uncertainty following Prime Minister Ishiba's resignation. At the September 19 meeting, the rate is likely to remain unchanged at 0.5%, with further decisions likely to be made in October or December. The basis for the hike is solid economic data: rising corporate profits, a tight labor market, and the strongest wage growth in years, coupled with a decline in risks thanks to the trade agreement with the US.
Despite the increased likelihood of a hawkish stance, the swap market continues to price in that a full 25 bp hike may not come until January 2026.
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The market has indeed begun to price in faster interest rate hikes following today's announcements. The chart compares the implied interest rate path today and yesterday. Source: Bloomberg Financial LP
