Bank of Japan, Fed Rate Hikes Expected Same Week: Will Yen Rally?

Traders are bracing for a rare stretch of synchronized tightening this week, with the Federal Reserve and the Bank of Japan (BOJ) both leaning toward a rate hike within 48 hours of each other.

The Fed announces its decision Wednesday afternoon, with futures markets pricing an over 80% chance of a quarter point increase. The BOJ, however, follows two days later, on Friday.

Rate Hike Odds Build on Both Sides of the Pacific

A CNBC survey of 18 economists, conducted Sept. 9 to 14, found 89% expect the BOJ to raise its benchmark rate by 25 basis points to 1.25%, a fresh three-decade high. Respondents cited accelerating inflation, rising wages and pressure from Washington.

“The Trump administration has effectively checked any potential move by a Takaichi administration to block the Bank of Japan from raising interest rates.”

Takahide Kiuchi, executive economist at Nomura Research Institute, told CNBC.

Not every economist agrees on the pace. Jesper Koll, expert director at Monex Group, expects a single 50 basis point move instead. Meanwhile, Carlos Casanova, senior economist for Asia at Union Bancaire Privée (UBP), expects the BOJ to hold steady, arguing the data does not yet support a faster hiking cycle.

About 61% of respondents see the yen trading between 155 and 160 per dollar over the next month.

Fed Fighting Against a Hike

Fed odds have swung just as sharply. From a coin flip in late August to a strong 92% favorite for a hike now, a repricing that has coincided with the yen’s monthly gain against the dollar.

The pair’s moves would, moreover, add to a broader pattern BeInCrypto’s biggest macro risk analysis has flagged, in which the Fed, the European Central Bank and the BOJ could all tighten in the same window for the first time since 2006.

Traders now turn to the Fed’s dot plot and any BOJ dissent votes for clues on how fast the two economies’ rate paths converge.

A double hike would narrow the Tokyo-Washington rate gap for the first time in years. The implications for carry trades and risk appetite heading into the fourth quarter.