BOJ preview September: 25 bps hike expected with hawkish outlook in focus

The Bank of Japan (BOJ) is anticipated to raise interest rates by 25 basis points at its meeting on September 18, aiming to combat persistent inflation and a weakening yen. This would mark the bank's sixth rate increase since the end of ultra-loose policy in 2024 and its second hike in 2026. Rising inflation, driven by surging oil and gas prices due to the Iran conflict, and producer price index inflation reaching a 3½-year high, have fueled speculation of the rate hike.

The BOJ's decision is also influenced by joint currency market intervention with the U.S. and Governor Kazuo Ueda's recent comments about potential rate hikes. However, there are concerns about the BOJ's path forward, as Prime Minister Sanae Takaichi has advocated for looser monetary policies to boost growth. Despite these concerns, the potential hike and a hawkish outlook could lead to a depreciation of the yen, benefiting Japanese stocks and prompting cautious reactions from the market.