BOJ Set for 31-Year High Rate Hike Amid Pressure from Fed

The Bank of Japan (BOJ) is set to raise its interest rates to a 31-year high on Friday, following the Federal Reserve's rate hike on Wednesday. The move would bring the BOJ's policy rate to 1.25% from 1%, marking another step away from decades of ultra-low rates.

Analysts say the pressure is mounting on the BOJ to keep pace with global peers, as a widening U.S.-Japan rate gap could weaken the yen and lift inflation through higher import costs. The expected hike would bring the BOJ's policy rate within its estimated 1.1% to 2.5% range of Japan's nominal neutral rate.

BOJ Governor Kazuo Ueda will face tough questions at his post-meeting briefing, as markets closely watch for clues on the timing and pace of further increases. Analysts polled by Reuters expect the BOJ to hike rates to 1.25% this month, 1.5% by end-March next year, and then to 1.75% in the second quarter of 2027.

While many BOJ officials have remained vague on future rate hikes, some analysts warn that a slow pace could keep the yen weak, leading to higher inflation. BOJ Board member Toichiro Asada may dissent to the rate hike again, as he did in June.