Japan’s rate hike is a foregone conclusion, but the yen may not get the memo

The Bank of Japan is widely expected to raise its policy interest rate to 1.25% at its September 17-18 meeting, a level the country hasn’t seen since April 1995. Nearly every economist watching Japan has penciled this in. What they can’t agree on is whether the yen will actually care. Why the hike is coming The data backing a tightening move is hard to argue with. Japan’s second-quarter GDP growth was revised up to an annualized 1.4%, real wages climbed 2.4% year-on-year in July (the strongest pace since 2021), and wholesale prices rose 7.6% year-on-year in August. Polls put the probability of a 25 basis point hike somewhere between 88% and 97%, depending on who’s counting. BOJ officials have been signaling their direction clearly, flagging concern about inflationary risks tied to a weaker yen, elevated oil prices, and AI-driven demand pressures. Forecasters are already looking past September. A follow-up hike to 1.75% is projected by the second quarter of 2027, with some expecting movement as early as January of that year. So why isn’t the yen reacting more? The yen has already rallied, trading around 152-153 per dollar after spending much of the past year closer to the 164 range....