BOJ Expected to Hike Interest Rates for Third Time This Year

The Bank of Japan is poised to raise interest rates for the third time in just over a year, a move that would take borrowing costs to their highest level since the late 1990s. According to a survey by CNBC, nearly 89% of economists and analysts expect the BOJ to increase its policy rate by 25 basis points to 1.25%, following its last hike in June. This tightening cycle began when the central bank ended its negative interest-rate policy in March 2024.

Japan's consumer price index has remained close to the BOJ's 2% target, despite higher energy costs contributing to a 1.9% increase from a year earlier in July. Wage growth has also strengthened, with real wages increasing 2.4% in July from a year earlier. The combination of wages and prices is particularly important for the BOJ, which is looking for evidence that higher pay can support consumption and generate more durable inflation.

The BOJ has repeatedly said it will continue raising its policy rate if economic activity and prices develop broadly in line with its outlook. An increase this week would quicken the BOJ's recent pace of tightening after a gradual approach following the end of negative interest rates in March 2024. The yen will be another focus after Friday's decision, although economists differ over how much additional tightening would affect the currency.