BoJ Rate Hike Imminent as Tokyo Inflation Accelerates

Commerzbank's Volkmar Baur believes that accelerating inflation in Tokyo has strengthened the case for a Bank of Japan (BoJ) rate hike in September. The implied probability of an interest rate hike in September is around 84%, according to markets.

Baur argues that rising inflation, which reached 1.9% in August in the Greater Tokyo area and 2.0% excluding energy and fresh food, has accelerated over the past three months. Service sector inflation also hit a nearly one-year high of 0.39% in August.

The context for this rising inflation is an environment of high energy prices, expansionary fiscal policy, and a policy rate that is at best at the lower end of what the BoJ would describe as its neutral rate.