BOJ Hike Speculation: Why 50bps Increase Looks Unlikely in September

The Bank of Japan (BOJ) is facing a crucial policy decision as investors weigh whether it will opt for a larger-than-usual interest rate increase at its September meeting.

The BOJ is widely expected to raise its policy rate by 25 basis points to 1.25% on September 17-18, but speculation has emerged about a potential 50-basis-point hike, a move that would mark a sharp departure from its gradual approach.

Policymakers remain concerned that such a large increase could shock households and businesses accustomed to decades of ultra-low borrowing costs. A conventional 25-basis-point hike would allow the BOJ to continue tightening policy while giving policymakers more time to assess how higher interest rates affect corporate activity, household spending, and bank lending.

The BOJ began its current tightening cycle in 2024, relying on 25-basis-point increases at a pace of roughly two hikes a year. However, it is considering a faster pace of rate increases, potentially moving toward one hike every quarter.