Former Bank of Japan board member Seiji Adachi says the central bank will likely raise rates in September and again in January, with the yen trading near 159 per dollar. He warns a hold at the September 18 meeting could reignite yen weakness, while sluggish consumer spending stays the main risk to further tightening.
Former Bank of Japan board member Seiji Adachi expects the central bank to raise its benchmark rate next month and follow up with another increase as early as January. Traders are already assigning roughly an 80% probability to a hike at the September 18 policy decision, Adachi told Bloomberg on Monday.
Yen weakness raises the stakes for a hold
The yen was trading around 159 per dollar on Monday afternoon in Tokyo, not far from the psychologically key 160 level even after coordinated US-Japan intervention. Adachi said a decision to hold rates steady now carries more risk than moving, since markets have almost fully priced in a hike. According to Bloomberg: "The BOJ is pretty much boxed in. Markets have almost fully priced in a hike." He added that a hold could reignite a sharp yen selloff and drive faster import-driven inflation.
Bessent's comments narrow the government's room to object
Adachi pointed to public remarks from US Treasury Secretary Scott Bessent, who has said policy action should follow the currency intervention and voiced hope that Governor Kazuo Ueda will raise rates. That input, Adachi said, gives Ueda an opening because it makes it harder for Prime Minister Sanae Takaichi's pro-stimulus government to object to a move. Bessent has repeatedly signaled the BOJ is next to act, which Adachi said leaves the government little room to push back.
A steeper tightening path than economists expect
Adachi said Japan's inflation backdrop is strong enough that the BOJ will likely keep raising rates beyond September, with a further move most likely in January rather than December. He expects the tightening cycle to extend well beyond the 1.25% to 1.5% range once seen as terminal, and using a Taylor rule calculation, estimated the rate could ultimately need to reach around 2.75%, potentially leaving the policy rate at 2% or a little higher by the end of next year. That would be considerably higher than the median economist forecast of around 1.5%.
Japan's core inflation accelerated to 1.8% in July, its second consecutive monthly pickup, which Adachi said has convinced many private-sector economists that Middle East conflict-driven costs are starting to feed through to Japanese prices. He forecasts inflation could accelerate beyond 2.5%. But consumer spending fell 0.1% year on year in the April-to-June quarter despite a one-off boost from front-loaded demand ahead of a regulatory change, and Adachi flagged weak household spending as the key risk to how aggressively the BOJ can keep tightening.
Source: Investinglive
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