- Market-implied odds of a BOJ rate increase at the September 17-18 policy meeting moved from less than 30% before the July 31 intervention to almost 100%, a repricing the column attributes chiefly to US Treasury Secretary Scott Bessent's pressure on Japanese policymakers to strengthen the yen.
- Bond markets price a one percentage point rise in Japanese borrowing costs to 2% by Q3 2027; JPMorgan runs a more hawkish call of 2.25% by the end of next year.
- The July 31 operation was the first time the US Treasury and Japan joined forces to support the yen via outright purchases since 1998.
- The column argues the intervention carries adverse implications for Japan's economy, the BOJ's credibility, and tech-heavy stock markets in Asia.
Quotes
“the probability of the Bank of Japan raising interest rates at its policy meeting on September 17-18 was less than 30 per cent”
“the chances of an increase have shot up to almost 100 per cent”
“bond markets are pricing in a one percentage point rise in borrowing costs to 2 per cent by the third quarter of 2027”
“the most important one is the unprecedented pressure exerted by US Treasury Secretary Scott Bessent on Japanese policymakers to take more forceful action to strengthen the yen”