Bank of Japan rate hike expectations rise on strong wage growth and GDP data

Japan just posted its strongest nominal wage growth since the late 1990s, and the economy is expanding faster than previously thought. For a country that spent decades fighting deflation with every tool in the central bank’s arsenal, that combination reads less like a data release and more like a permission slip. Swap markets now price in roughly a 98% probability that the Bank of Japan will raise its policy rate by 25 basis points to 1.25% at its September 17-18 meeting. If that happens, it would mark the highest policy rate Japan has seen since the mid-1990s, continuing a tightening cycle that already lifted rates to 1% in June. The numbers behind the confidence Two data points landed on September 8 and together painted a picture that rate hawks could frame and hang on their walls. First, the Cabinet Office revised second-quarter GDP growth upward to an annualized rate of 1.4%, from an initial estimate of 1.1%. On a quarter-on-quarter basis, that’s 0.4% instead of the previously reported 0.3%. The revision was driven partly by a smaller-than-expected decline in capital spending, which came in at negative 0.9% rather than the earlier reading of negative 1.2%. Net exports pitched i...