October BoJ Hike Looks Underpriced

The Bank of Japan is expected to raise interest rates in October as resilient economic data and AI-driven growth offset previous supply-side concerns. Markets are currently underpricing this probability, which remains at approximately 60%.

Key Takeaways

• 1.Current market pricing for a Bank of Japan rate hike by October (c. 60%) is too low.
• 2.The AI export boom is cushioning Japan's terms of trade against energy price shocks, facilitating a more hawkish BoJ stance.

Table of Contents

• Japanese wage growth accelerating
• AI cushions energy blow
• Business inflation expectations rising
• Prime age employment rate keeps increasing
• Stronger retail sales recently
• Overall consumption growth is satisfactory for BoJ
• Current Trade Recommendations
• Model portfolio performance
• Model portfolio metrics since inception

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