BOJ Eyes Aggressive Inflation Fighting Posture by Year-End

Tsutomu Watanabe, a former Bank of Japan official and price expert, predicts that the BOJ will shift its approach to combat inflation by December. This change would signal an acceleration in rate hikes, with the BOJ potentially raising interest rates every quarter.

Japan is experiencing its third wave of inflation, driven by the ongoing Middle East conflict, following waves triggered by the Ukraine war and domestic wage hikes. Watanabe expects consumer inflation excluding fresh food and fuel to peak near 3% in March next year before slowing towards the BOJ's 2% target.

However, underlying inflation is rising, approaching 2%, driven by a tight labor market and price increases. This requires the BOJ to revamp its approach under Governor Kazuo Ueda, which has been tolerating slow rate hikes to ensure the economy reaches 2% inflation.