The Bank of Japan is set to raise interest rates as soon as September and is weighing a faster pace of hikes afterward, according to three sources familiar with its thinking. The move reflects growing alarm over inflation, the yen's persistent weakness, and pressure from the Middle East conflict and global AI demand.
The Bank of Japan is set to raise interest rates as soon as September and is considering hiking more aggressively after that, three sources familiar with the central bank's thinking told Reuters. The BOJ has moved at roughly twice a year since exiting its decade-long stimulus in 2024, including June, when it took rates to a 31-year high of 1%.
Inflation pressures build the case
According to Reuters: "An early rate hike has come into sight," one of the sources said, pointing to the BOJ's next policy meeting on September 17 and 18. A second source echoed that the central bank could also speed up the pace of increases. Surveys suggest household, firm and economist inflation expectations are all approaching or exceeding the BOJ's 2% target, and wholesale inflation stayed at three-year highs in July, raising the risk that higher costs spread to consumer prices.
Governor Kazuo Ueda said last month he would factor the board's growing unease over inflation risk into future meetings, and that the BOJ may accelerate hikes if financial conditions were judged too loose. A summary of opinions from the July meeting showed some board members already pushing for a faster pace to avoid falling behind the curve.
Yen weakness adds to the pressure
The yen has compounded the case for tighter policy. It fell about 0.9% this week to 159.29 per dollar, its biggest weekly loss in about a month, as the effect of last month's joint U.S.-Japan intervention faded. The currency had traded near 164 per dollar before that intervention, and traders see the 160 level as a potential trigger for further official buying.
It ticked up slightly on Friday after Reuters reported the BOJ's rate-hike deliberations. Still, the two-year Japanese government bond yield rebounded and the five-year yield rose to a record high as bond markets repriced the odds of tighter policy.
Markets lean toward a September move
Markets are now pricing in nearly an 80% chance of a rate hike in September. Some analysts say a September move would open scope for another increase in December, pointing to a possible quarterly hiking pace. The BOJ did not comment when contacted by Reuters.
Sources: Investing.com/Reuters, Investing.com/Reuters
Trading involves risk.
Risk Disclaimer
