BOJ Considers Rate Hike as Inflation Risks Mount Amid Global Turmoil

The Bank of Japan (BOJ) is considering raising interest rates as early as September, with some policymakers advocating for faster hikes to combat rising inflation risks. The BOJ's potential shift in monetary policy reflects growing concerns about price pressures stemming from the Middle East conflict and a strong global demand linked to artificial intelligence.

Markets are pricing in nearly an 80% probability of a rate hike at the BOJ's September 17-18 meeting, with some experts predicting another increase in December. The BOJ has previously raised rates roughly twice a year since ending its decade-long stimulus program in 2024, including a 1% increase in June.

The central bank warned that rising price pressures could push underlying inflation above its 2% target, and some policymakers favor accelerating rate increases to prevent this from happening. BOJ Governor Kazuo Ueda has indicated that the central bank will closely consider the rising inflation risks when deciding future rate moves.