BOJ Poised to Ditch Inflation Tolerance, Hike Rates Faster

Japan's central bank may soon shift its stance on inflation, according to Tsutomu Watanabe, an expert on price trends. As a former Bank of Japan (BOJ) official, Watanabe predicts that the BOJ will move from tolerating inflation to actively fighting it as early as December.

This change in posture would likely result in faster interest rate hikes, with Watanabe suggesting a quarterly pace rather than the current twice-yearly increases. The economist attributes Japan's third wave of inflation to the Middle East conflict and expects consumer prices excluding fresh food and fuel to peak near 3% by March next year.

Watanabe warns that underlying inflation is rising, nearing 2%, driven by a tight labour market and price rises. He believes this requires a more aggressive approach from Governor Kazuo Ueda's team, which has so far taken a slow and steady approach to rate hikes.