The swap market has fully priced in a rate hike for September, and Nomura goes further: in an extreme scenario, the Bank of Japan may deliver an unprecedented "three consecutive strikes" within the year.

According to Jinse Finance APP, Nomura Securities recently pointed out that if the depreciation pressure on the Japanese yen continues to intensify, the Bank of Japan may, in an extreme scenario, raise interest rates three times in succession before December this year.

Yujiro Goto, Nomura’s Head of FX Strategy, said in an interview that a 25 basis point rate hike this month “seems reasonable,” and “if yen weakness continues towards the 160 level, consecutive hikes in October and December cannot be ruled out.”

Goto’s comments highlight the sharp shift in market expectations toward Bank of Japan policy — previously, the bank had maintained a cautious pace in normalizing monetary policy. Since the start of this week, with market expectations rising for a quicker policy tightening and speculation about Japan’s government pension investment fund potentially adjusting its asset allocation, the yen has appreciated more than 2%, trading near 156 against the US dollar.

Swaps market data show that the market has fully priced in a 25 basis point Bank of Japan rate hike before September, and expectations for another hike before January next year have also been reflected in prices. Bank of Japan Governor Kazuo Ueda has already hinted that action at this month’s meeting is possible; meanwhile, Takahide Kiuchi, one of the most hawkish members of the policy board, has not ruled out a significant rate increase or consecutive hikes.

Nevertheless, three consecutive rate hikes would be an exceptionally aggressive tightening pace for a central bank that has long fought deflation and maintained borrowing costs near zero for the past thirty years.

Goto’s base case is relatively moderate. He believes it is reasonable and necessary for the Bank of Japan to raise rates at least once every quarter going forward, and he maintains his current target for USD/JPY at 154.

Goto also pointed out that the Japanese government’s stance on monetary policy may become a key variable in determining whether the yen can continue to strengthen. Investors are closely watching signals from Prime Minister Sanae Takaichi — she has previously taken a cautious stance on rate hikes, and the market wants to see if she supports further tightening by the Bank of Japan.

“If she continues to express a negative attitude toward rate hikes, the market will be disappointed and the yen could face renewed selling,” said Goto. On the other hand, if Sanae Takaichi avoids commenting on monetary policy or emphasizes the central bank’s independence, he believes there is room for the yen to break above the 150 level.

In addition, the Federal Reserve’s policy path may also be a new catalyst. Recent remarks by Federal Reserve officials suggest that US policymakers may not be eager to raise rates in September. Goto stated that if the Federal Reserve stands pat while the Bank of Japan sends hawkish signals, dollar weakness could return, pushing the USD/JPY rate below the 155 mark earlier than the market expects.