The Bank of Japan is expected to steadily move toward a 2% terminal interest rate, with another 25 basis point hike possible in October.

(1) Sumitomo Mitsui DS Asset Management strategist Masahiro Ichikawa expects the Bank of Japan to maintain a steady tightening path, ultimately raising rates to a terminal level of 2.0%. (2) He anticipates the specific path will be: a 25 basis point rate hike in October, followed by further tightening in March and September 2027 and March 2028. (3) Currently, the overnight index swap market reflects an approximately 80% probability of an additional rate hike within the year, but Ichikawa believes that market expectations still have room to be adjusted upwards. The Bank of Japan this week has already raised interest rates to 1% and reiterated its commitment to further rate increases.