BOJ Set for 25-Basis-Point Rate Hike Next Week Amid Inflation Concerns

The Bank of Japan is poised to increase interest rates next week by a likely 25 basis points, according to four sources familiar with its thinking.

This move would bring the BOJ's policy rate to levels unseen in 31 years, reaching 1.25%, and indicates a faster pace of tightening, particularly if another rate hike occurs this year.

The BOJ sees conditions aligning for further rate hikes due to the economy's moderate recovery and building price pressure, with many within the central bank believing underlying inflation is close to hitting 2%.

The BOJ also expects financial conditions to remain loose even if interest rates reach 1.25%, but will continue to monitor risks of an inflation overshoot amid a renewed surge in fuel prices and past declines in the yen's value.