BOJ Plans Early Rate Hike as Inflation Concerns Mount

The Bank of Japan (BOJ) is planning to raise interest rates as early as September and may accelerate the pace of rate increases from its current twice-a-year schedule, according to sources familiar with its thinking.

This move would reflect the BOJ's growing concerns over price pressures from the Middle East conflict, strong global AI demand, and the yen's downtrend. Despite last month's rare Japan-U.S. joint intervention, the yen has continued to weaken, which is likely to boost import costs and prices for a broad range of goods.

One source noted that an early rate hike has come into sight, signaling a strong chance the BOJ will raise rates at its next policy meeting on September 17 and 18. The two-year Japanese government bond (JGB) yield rebounded after Reuters initially reported the central bank's deliberations.

The BOJ has been keeping its policy steady lately, but it delivered its strongest signal to date on the chance of an early rate hike by warning that mounting price pressures could push underlying inflation above its 2% target. Governor Kazuo Ueda said he would take into account the board's growing alarm over inflation risks in chairing future meetings.