BofA: Hawkish BOJ hike would support stronger yen

A hawkish interest rate hike by the Bank of Japan (BOJ) at its meeting next week would support a stronger yen, predicts Shusuke Yamada, an FX and rates strategist at Bank of America (BofA) Global Research. He noted that the market has already priced in a significant portion of this potential rate increase. Current market pricing reflects an approximately 50% probability of an additional hike at the October meeting. Yamada analyzed that the market would likely interpret the move as hawkish if the probability of an October hike rises above 60% and the chance of a further increase at the March meeting next year surpasses 50%. As a result, market attention is now focused on what guidance the BOJ will provide on its future policy rate path at next week's meeting.