Fed and BOJ to raise rates within 48 hours

The Federal Reserve will announce its policy decision on Wednesday and the Bank of Japan will decide on Friday, with markets pricing a close likelihood of rate increases on both sides of the Pacific within 48 hours. Fed futures show better than an 80% chance of a 25 basis-point U.S. rate increase. A survey of 18 economists conducted Sept. 9–14 found 89% expect the BOJ to raise its benchmark rate by 25 basis points to 1.25%, a level not seen in about three decades.

Economists in the survey pointed to accelerating inflation, rising wages and external political pressure as factors pushing the BOJ toward a hike. Takahide Kiuchi, executive economist at Nomura Research Institute, attributed some of the political pressure to actions by the Trump administration that have reduced room for a domestic political bloc to oppose rate increases.

Forecasts differ on the scale and timing of tightening. Jesper Koll at Monex Group expects a single 50 basis-point BOJ move, while Carlos Casanova, senior economist for Asia at Union Bancaire Privée, judges that current data may not yet support a faster hiking cycle and expects the BOJ to hold.

Markets have rapidly repriced Fed odds, shifting from roughly even in late August to a strong probability of a quarter-point hike. Traders will watch the Fed’s updated projections, including the dot plot, for guidance on the U.S. rate path, and will monitor any dissenting votes at the BOJ meeting for clues about the central bank’s commitment to tightening.

A near-simultaneous tightening by Tokyo and Washington would narrow the policy rate gap between the two countries for the first time in years. Currency markets have already reacted: the yen has regained some ground against the dollar this month, and about 61% of survey respondents expect the yen to trade between 155 and 160 per dollar over the next month.

Analysts note the possibility that the Fed, the European Central Bank and the BOJ could tighten within a similar window for the first time since 2006. Market participants say the speed of follow-up hikes after this week’s decisions will determine how long any narrowing of rate differentials lasts.

Investors expect clearer policy signals by the end of the week. Beyond the two rate decisions, market attention will focus on central bank communications, upcoming inflation and wage reports, and any changes to economic projections that could alter the likely path of future tightening.