BOJ Prepares for Possible Rate Hike as Markets Price In September Move

Japan's central bank is preparing financial markets for another possible interest-rate increase. According to Bank of Japan Deputy Governor Ryozo Himino, policymakers will assess the timing and pace of future hikes at each meeting as they work to stabilize underlying inflation around 2%. The BOJ has not committed to raising rates at its September 17-18 meeting, but markets are now pricing in nearly a 90% probability.

The policy rate currently stands at 1%, its highest level in 31 years. A further increase of 25 basis points would bring the rate to 1.25%. Himino's comments indicate that the BOJ is maintaining a flexible approach to monetary policy rather than setting a predetermined schedule for additional increases.

The central bank will continue to assess whether underlying inflation is moving toward its objective, with a focus on incoming economic and financial data as well as developments that could affect inflation and economic activity. The prospect of higher rates has also increased attention on the Japanese yen and domestic price pressures.