BOJ Prepares for Rapid Rate Hikes Amid Inflation Concerns

Bank of Japan (BOJ) board member Kazuyuki Masu warned that if inflation accelerates in Japan, the central bank may be forced to raise interest rates rapidly. In a speech ahead of next week's policy meeting, Masu noted that underlying inflation is 'very close' to the 2% target and that financial conditions remain accommodative.

Masu emphasized the importance of pulling real interest rates out of negative territory as soon as possible, signaling concern over the demerits of too-low borrowing costs. He also highlighted the risk of price pressures spreading from producer prices to consumer goods, citing rising fuel and chemical prices due to the Middle East conflict and a weak yen.

Analysts polled by Reuters expect the BOJ to hike rates to 1.25% next week and then to 1.75% in the second quarter of 2027. Masu's comments add to a slew of hawkish BOJ commentary, increasing the likelihood of a rate hike this month.

The BOJ will release wholesale inflation data for August on Friday, which is expected to show further evidence of broadening price pressures. Sources have told Reuters that the BOJ is set to raise rates as soon as September and consider hiking more aggressively thereafter.