BOJ May Shift to Aggressive Inflation-Fighting Posture by December

Tsutomu Watanabe, a former Bank of Japan official and expert on price trends, predicts that the BOJ may shift to an inflation-fighting posture from its current tolerance approach as soon as December. This would result in accelerated rate hikes.

Watanabe attributes the recent third wave of inflation in Japan to the Middle East conflict, following the first wave caused by the Ukraine war and a second one driven by domestic wage hikes and rising rice costs. He forecasts that consumer inflation excluding fresh food and fuel will peak near 3% around March next year before slowing towards the BOJ's 2% target.

However, Watanabe warns that underlying inflation is rising and now close to 2%, driven by a tight labor market and price increases. This mounting pressure requires a revamp in Governor Kazuo Ueda's approach of taking rate hikes slowly and tolerating price rises.