Goldman Sachs says a Bank of Japan rate hike at this week's meeting is essentially locked in, and it now sees rising odds of a second move as soon as December. The bank argues the faster pace could lift the yen and Japanese government bond yields, while cutting both ways for the Nikkei 225.
A September hike, then maybe another in December
Goldman Sachs treats a hike at the Bank of Japan's September 17-18 meeting as a done deal, shifting its focus to how quickly policymakers move next. The bank sees growing odds of a faster tightening pace, with another hike possible as soon as December.
Goldman points to elevated energy prices, robust AI-related demand, a weaker yen and accommodative financial conditions as forces that could push the BoJ to tighten faster than markets currently expect. The bank also expects fiscal policy under Prime Minister Takaichi to stay accommodative, adding further upward pressure on inflation.
Yen and Nikkei face a mixed read-through
A steeper hiking path would typically support the yen, since it narrows Japan's policy gap with other major central banks and can unwind carry trades funded in yen. That dynamic cuts both ways for the Nikkei 225: a stronger yen tends to weigh on the earnings outlook for Japan's large exporter base, even as higher rates pressure valuations across more rate-sensitive parts of the market.
Goldman's own focus, however, sits with Japanese government bond yields. The bank argues current low real yields look inconsistent with what it calls strong domestic fundamentals, leaving room for JGB yields to climb further.
A credibility test for the BoJ
Goldman frames the faster-hiking scenario partly as a credibility exercise, arguing a quicker pace could ease concerns that the central bank has fallen behind the curve on inflation. Should the BoJ hike this week and signal openness to moving again before year-end, attention is likely to turn to how the yen and Nikkei absorb the shift in expectations.
Source: investingLive
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