The Bank of Japan expects to raise interest rates faster and more regularly as it moves to pre-empt an inflation overshoot, sources familiar with its thinking told Reuters. This week's Tankan survey and Tokyo inflation data will shape whether the next move comes in October or December, with the policy rate already at 1.25% after September's increase.
That shift raises the stakes on data due this week for gauging the timing of the central bank's next rate hike, sources told Reuters.
Tankan and Tokyo inflation data to steer October or December call
Any sign that corporate inflation expectations heighten in Thursday's Tankan survey, or that price pressures broaden in Friday's inflation data, will likely bolster the case for another rate hike in October or December. Core consumer inflation in Tokyo is likely to have hit 2.4% in September, accelerating from 1.8% in August, a Reuters poll showed.
Having just raised rates, however, the BOJ will likely set a high hurdle for an October move, which becomes an option only if external shocks lift the risk of an inflation overshoot, three sources familiar with its thinking said. According to Reuters, financial conditions remain accommodative: "requiring the BOJ to hike steadily as needed," the first source said.
Rate path builds toward 2% by mid-2026
The BOJ's policy rate stands at 1.25% after exiting a decade-long stimulus, hiking once in 2024 and twice in 2025. It pivoted toward fighting inflation in June, when it raised rates to 1.0% as rising import costs heightened the chance of broad-based price rises, then held steady in July before hiking again in September.
Former BOJ board member Makoto Sakurai, who retains close ties with incumbent policymakers, told Reuters he expects the central bank to raise its policy rate to 2% by around June next year.
Ueda points to a "new phase" of pre-emptive hikes
Governor Kazuo Ueda has said a back-to-back increase could come only if there were a risk of sharp price rises or if underlying inflation were already above the BOJ's 2% target. He also stressed the central bank's readiness to act pre-emptively, a sign it will no longer spend an inordinate amount of time between meetings to lift borrowing costs.
With underlying inflation close to 2%, the BOJ's policy has entered a "new phase" focused on forestalling inflation risks, Ueda said this month. In current forecasts, the BOJ expects nationwide core inflation to hit 2.5% in fiscal 2026 and 2.4% in fiscal 2027.
Source: Investing.com
Trading involves risk.
Risk Disclaimer
