BoJ Expected to Hike Policy Rate Amid Economic Caution

Standard Chartered's analysts Chong Hoon Park and Nicholas Chia expect the Bank of Japan to raise its policy rate by 25bps to 1.25% at its meeting on September 17-18.

This move would be considered pre-emptive, as they believe the economy can absorb another modest hike.

According to Park and Chia, 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.

The analysts anticipate a more patient phase of policy normalisation thereafter, given structurally slow growth and fiscal constraints.