The Bank of Japan is due to announce its target rate on Sept. 18, and previews from several institutions are centered on two questions: whether the BOJ will raise rates by 25 basis points today, and whether its guidance will leave the door open to more tightening.
Most previews point to a 25-basis-point move
Reuters, citing surveyed economists, said Japan's policy rate is expected to reach 1.5% by the end of March next year and 1.75% in the second quarter of 2027. Most economists in the survey believe the terminal rate will reach at least that level.
BNP Paribas expects the BOJ to raise rates by 25 basis points to 1.25%, followed by additional increases in December and next March that would take the target rate to 1.75%.
Goldman Sachs said today's decision is effectively a done deal and that another rate hike could come as early as December.
TD Securities also expects a 25-basis-point increase to 1.25%. It then sees another 25 basis points in December this year, and further hikes in April, July, and October of 2027, which would lift the target rate to 2.25%.
MUFG said the market expects the BOJ to deliver a 25-basis-point increase and to hint at further hikes ahead.
Inflation risks and bond yields are part of the case
BNP Paribas said the BOJ may be concerned about upside inflation risks, as companies could pass rising costs for energy, metals, and chips on to consumers.
Goldman Sachs said high energy prices, strong AI demand, a weaker yen, and loose fiscal policy could all push inflation above expectations. The bank also said Japanese government bond yields still have room to move higher, adding that current levels do not match the resilience of Japan's economy.
Guidance may decide the yen's next move
TD Securities said that if the BOJ's guidance does not factor in a possible hike in October or December, the yen could face immediate selling pressure and move into the 157-160 range.
MUFG made a similar point. It said the yen could weaken if the central bank does not send a sufficiently hawkish message on future rate increases. The bank added that markets have already priced in a cumulative 90 basis points of hikes over the next 12 months, meaning a cautious tone from BOJ Governor Kazuo Ueda could weigh on the currency.