HSBC: Bank of Japan may support the yen with a hawkish rate hike in September; the key to recovery lies in capital inflows and improvements in real interest rates

(1) Joey Chew, Head of Asia FX Research at HSBC, stated that as the Japanese yen gradually weakens again, the Bank of Japan has the opportunity to stabilize the yen exchange rate through a hawkish rate hike at its September meeting. (2) The market currently expects that the Bank of Japan will raise rates by a total of 80 basis points over the next 12 months, bringing the interest rate to 1.8%. HSBC’s economic research team has adjusted its forecast from “only one rate hike in December” to “one rate hike in September and another in the first quarter of 2027,” with a final rate target of 1.5%. (3) Chew pointed out that whether the yen can achieve a sustained recovery mainly depends on three conditions: whether the real interest rate becomes more attractive, whether concerns about fiscal sustainability ease, and whether Japanese residents shift from holding overseas assets to allocating domestic assets.