BOJ and Fed Both Expected to Raise Rates Amidst Rare Simultaneous Tightening

Traders are anticipating a rare simultaneous tightening this week as the Federal Reserve (Fed) and Bank of Japan (BOJ) both appear poised to raise rates within 48 hours.

The Fed is scheduled to announce its rate decision on Wednesday afternoon, with futures markets pricing in an over 80% probability of a 0.25 percentage point increase. The BOJ will make its decision two days later on Friday.

According to a CNBC survey conducted between September 9 and 14 among 18 economists, 89% expect the BOJ to raise its policy rate by 25 basis points to 1.25%, marking the highest level in 30 years. Respondents cited accelerating inflation, wage growth, and pressure from Washington as key factors.

Nomura Research Institute Chief Economist Takahide Kiuichi told CNBC that not all economists agree on the outlook. Monex Group's expert Yesper Col said he anticipates a single 50bp hike, while UBP Asia Senior Economist Carlos Casanova expects the BOJ to hold rates steady, noting insufficient data to support a faster pace.

About 61% of respondents forecast the yen will trade between 155-160 yen per dollar over the next month. The Fed's rate hike probability has also surged from 50% at the end of August to 92% now, coinciding with a recent one-month rise in the yen against the dollar.

The market is now watching the Fed's dot plot and internal BOJ disagreements to gauge how quickly interest rates between the two economies might converge. If both central banks raise rates simultaneously, the Tokyo-Washington rate differential could narrow for the first time in years, impacting carry trades and risk appetite ahead of Q4.