September FOMC and Bank of Japan Monetary Policy Outlook

■ The FOMC is likely to implement its first rate cut of the year in September, and the outlook for the policy rate at the September FOMC warrants close attention. 

■ The Bank of Japan is expected to keep its policy rate unchanged at its upcoming financial policy meeting; attention should be directed to Bank of Japan Governor Ueda's press conference. 
 

   This article summarizes the mid-September meetings of the US Federal Open Market Committee (FOMC) and the Bank of Japan (BOJ). The Fed is expected to lower rates, while the BOJ remains on track for rate hikes, with both sides expected to keep their policy paths steady.  
 
   The FOMC will meet on September 16th and 17th. The market anticipates a 25-basis point cut in the federal funds rate target range (4.25-4.50%). If this happens, it will be the first rate cut since December of last year. Since the Jackson Hole symposium in August, markets have interpreted the Fed's shift toward acknowledging downside employment risks, considering its dual mandate of price stability and maximum employment. Supporting this view, July’s US Job Openings and Labor Turnover Survey (JOLTS) and August employment data both point to a slowing labor market, reinforcing expectations of a rate cut in September. The August Consumer Price Index (CPI), to be released today (the 11th), is likely to match market expectations unless there are significant deviations. The pace and size of future rate cuts will be closely watched through the FOMC's quarterly Economic Projections (SEP). As of June, the median forecast for the policy rate was 3.9% by the end of 2025, 3.6% by the end of 2026, and 3.4% by the end of 2027, but these projections are expected to be revised downward. If the SEP indicates a faster move to the neutral level of around 3.00%, markets could react with rising US stocks, declining US Treasury yields, and a weaker dollar. 

    The Bank of Japan's September policy meeting is scheduled for the 18th and 19th. Market expectations are that the policy rate—the target for unsecured overnight lending—will stay at around 0.50% for the fifth consecutive time. In their first statements since the tariffs were set during the Japan-US trade negotiations on August 28, Board Member Nakagawa and Vice President Himino reiterated their stance of "adjusting the degree of easing if the Bank of Japan's outlook for the economy and prices gradually materializes." They also expressed caution about further rate hikes amid high uncertainty related to tariffs. Meanwhile, the Japanese economy grew at an upwardly revised annualized rate of 2.2% in April-June, and July’s labor statistics showed increased wages in both total cash wages and base salaries. Several economic indicators support the case for the Bank of Japan's policy normalization. Despite ongoing political uncertainty, if Governor Ueda revises his previous statement at the press conference, the market might interpret this as a signal for a rate hike at the October policy meeting, when the "Economic and Price Outlook" will be released.