JPY: The game of interest rate hikes begins again – Commerzbank

Yesterday, when reports emerged that the Bank of Japan is still considering raising interest rates this year, I experienced a slight sense of déjà vu, Commerzbank's FX analyst Michael Pfister notes.

JPY may therefore face volatile times ahead

"It seems that we are entering another period in which the central bank is testing the waters to see how the market might react to a further interest rate increase."

"It is worth noting that, after years of zero interest rates respectively slightly lower and the ever-present danger of stifling inflationary pressure too early, the interest rate hike cycle in Japan differs from that in other Western countries. Interest rates are being raised very slowly, and the market is usually prepared for an impending increase well in advance."

"Two things can be taken from this. Firstly, the next interest rate hike is approaching, but it is likely to be several months away. Our Japan experts have long anticipated the next step (to 0.75%) at either the December or January meeting. Secondly, we may see more such announcements in the coming weeks in preparation for an interest rate hike. The yen may therefore face volatile times ahead."