Revising our BoJ policy rate scenario; now expecting next hike at September MPM · 【 Fixed Income Commentary - Monetary Policy Navigator 】

Key arguments

• Governor Ueda's post-MPM language shifted to a 'thorough discussion' at upcoming meetings due to upside price risks, signaling the September MPM may be live.
• The unusual coordinated Japan-US yen-buying intervention and US Treasury Secretary Bessent's comments suggest the US expects the BoJ to hike.
• The Takaichi cabinet appears more wary of accelerating yen weakness and higher import prices, and the MoF may worry about long-term yields rising.
• MUFG raises its terminal rate forecast from 1.50% to 1.75%, reflecting a phase shift to anchoring inflation at 2%.

Corresponding source evidence

1. We infer that the BoJ now sees itself as having moved from a phase of pushing underlying CPI inflation up to 2% to a phase of anchoring it there.
2. (Governor Ueda’s comments at the press conference translated by MUMSS.) The Japanese government intervened to buy yen and sell dollars in the New York FX market on July 30, according to reports in the Nikkei and elsewhere, and on July 31 the Japanese and US authorities each announced that they had conducted a coordinated yen-buying intervention.
3. The Ministry of Finance (MoF), responsible for Japan’s government finances, is also likely worried that heightened inflation concerns caused by accelerating yen weakness will push long-term yields higher as it begins drawing up the FY27 budget. · long-term