Market expectations suggest that the Bank of Japan will accelerate its monetary policy tightening, with implied cumulative rate hikes totaling around 75 basis points by April 2027, according to FX Street. Additionally, there are significant odds that the central bank will make a move at its upcoming meeting on 18 September.
HSBC has also noted this shift in sentiment, highlighting that markets now foresee a quicker pace of policy tightening from the Bank of Japan. This marks a notable change from previous outlooks that anticipated a more gradual approach.
The Japanese yen could experience increased volatility as investors adjust to the prospect of faster rate hikes, impacting foreign exchange and broader financial markets in Japan.