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Yen strengthens as Japan data raises odds of a September BoJ hike
Revised Japanese GDP growth and faster wage gains pushed pricing to about 98% for a September hike to 1.25%, with markets also discounting a second 1.50% move by January.
The yen accelerated higher after fresh Japanese data strengthened expectations for Bank of Japan tightening later this year, with traders focusing on whether policy normalization can continue at a faster pace. Action Forex said revised Q2 GDP growth came in at 0.4% quarter over quarter, up from a preliminary 0.3%, and annualized growth was upgraded to 1.4% from 1.1%.
Wage figures were a key driver of the shift. Action Forex reported nominal cash earnings rose 4.7% year over year in July, the strongest increase since 1997 and above expectations, while real wages increased 2.4% and base pay gained 4.1%. The breadth of the improvement is also making it harder for markets to dismiss the data as a temporary summer effect.
As a result, rate pricing moved sharply toward tightening. A September BoJ hike to 1.25% is now priced at around 98%, and another increase to 1.50% by January is effectively fully discounted, according to Action Forex.
Beyond the next decision, Action Forex said longer dated pricing points to roughly 3.7 cumulative hikes by July 2027. The article also cited Takuji Aida, an economic adviser to Prime Minister Sanae Takaichi, saying the BoJ is likely to raise rates in September and continue at roughly a quarterly pace through January 2027 before slowing down.