BOJ Policymakers Signal Hawkish Shift Towards September Rate Hike

The Bank of Japan (BOJ) is under pressure to raise interest rates in September due to mounting inflation risks, according to policymakers' opinions shared in a summary of their July meeting. The BOJ's target for underlying inflation is 2%, but several board members warned that the risk of it overshooting this target has increased.

Rising import costs from a weak yen and strong demand for AI-related goods are driving up prices, exacerbated by high fuel costs due to the conflict in the Middle East. One BOJ member emphasized the need for vigilance against inflation overshoot, stating that the pace of rate hikes could be faster than markets expect.

Another member noted that the focus has shifted from pushing up underlying inflation to preventing it from exceeding 2%. This person called for accelerating the pace of monetary policy adjustments and raising interest rates more quickly. Two other members agreed with a 'nimbler' approach to rate hikes to address inflation risks and bring the BOJ's policy rate closer to neutral levels.