A scheduled policy meeting this week brings the Bank of Japan closer to further tightening as the Yen remains under pressure. The central bank is widely expected to raise its policy rate by 25 bps to 1.25%, following 75 bps of tightening since July 2024. This move would mark the highest rate in 31 years, aimed at countering currency weakness despite a $96 billion intervention in July and August. Ten year JGB yields have already climbed to their highest level in approximately 30 years.

Board member Hajime Takata signaled support for faster hikes last week, though Prime Minister Sanae Takaichi's government favors growth stimulation. Aggressive tightening risks straining Japanese borrowers, as floating rates apply to 70% of corporate loans and 75% of mortgages. Further hikes could accelerate the unwinding of the Yen carry trade and increase global market volatility, while some analysts suggest a subsequent hike at the October meeting.