BOJ Hawks Gain Momentum as Inflation Risks Mount

The Bank of Japan's (BOJ) case for a September rate hike has gained strength after a growing number of policymakers argued for a more forceful response to mounting inflation risks, according to a summary of opinions at their July meeting.

At least three board members said the BOJ could raise rates more quickly than its current pace of roughly two increases a year, highlighting growing alarm that the bank is falling behind on inflation. The summary's hawkish tone reinforces market expectations for a rate hike as soon as September, following joint intervention by Tokyo and Washington to prop up the yen.

BOJ Governor Kazuo Ueda has already signaled his commitment to preventing price increases from exceeding the 2% target, which is being threatened by rising import costs, strong AI demand, and high fuel prices due to the Middle East conflict. Several board members called for a nimble approach to raising rates, with some citing heightening inflation expectations and still-accommodative financial conditions.

With real borrowing costs still negative, despite the BOJ's recent rate hikes, including a 31-year high of 1% in June, critics say the bank's cautious pace contributed to the yen's slide to a 40-year low. Most analysts expect the central bank to raise rates again to 1.25% by year-end.