BOJ Set for 25bps Hike as Inflation Concerns Mount
The Bank of Japan (BOJ) is set to raise interest rates by 25 basis points at its two-day meeting on September 18, according to market expectations.
This move would bring rates to their highest levels since 1993 and mark the BOJ's sixth hike since it ended ultra-loose policy in 2024. The potential increase will also be the central bank's second hike this year, with rates expected to reach 1.25%.
The decision is driven by sticky inflation and prolonged yen weakness, which has been exacerbated by higher oil and gas prices following the Iran conflict. While government subsidies have mitigated some of the impact on consumer price index (CPI) inflation, producer price index (PPI) inflation jumped to a 3-½ year high in August.
BOJ Governor Kazuo Ueda is set to speak after the rate decision, with his comments being closely watched for forward guidance. Analysts are unsure if the BOJ will signal a faster pace of normalization amid elevated inflation. Prime Minister Sanae Takaichi has called for looser monetary conditions, but this may be at odds with the BOJ's hawkish outlook.