Bank of Japan Expected to Raise Rates Ahead of Inflation Risks

Standard Chartered's economists expect the Bank of Japan to raise its policy rate by 25bps to 1.25% at its meeting on September 17-18.

This move is seen as a pre-emptive hike, with the economy able to absorb another modest increase in interest rates.

The economists point out that Q2 GDP growth was revised up, exports remain robust, investment indicators are resilient, and real wages are rising.

However, they also note that inflation risks are increasing due to higher energy prices and earlier JPY weakness passing through the supply chain.

Ahead of this meeting, the economists expect a more patient phase of policy normalisation after the initial hike, given structurally slow growth and fiscal constraints in Japan.