BoJ Poised to Hike Interest Rate Amid Growing Inflation Fears

The Bank of Japan (BoJ) may raise its benchmark interest rate again next week to combat growing inflation concerns. Board member Kazuyuki Masu stated that the BoJ will continue to increase the policy interest rate, given a prevailing price trend very close to 2% and financial conditions that remain accommodative.

Masu emphasized the importance of keeping the underlying inflation rate below 2%, warning that rising prices for fuel and chemicals due to the war in Iran may push up overall prices. He noted that data released this week showed gross domestic product revised higher to 1.4% from the previous quarter on an annualised basis, and wages in July rose at the fastest clip in almost 30 years.

The BoJ's estimated neutral rate is between 1.1% and 2.5%, with Masu indicating that raising the policy interest rate further will ensure it falls within this range. This would provide flexibility to adjust the policy rate quickly in response to changing economic conditions. Economists see a key inflation gauge rising toward 3% this year.