BOJ Set for Next-Week Rate Hike, Eyes on Inflation Risks

The Bank of Japan is set to raise interest rates next week by 25 basis points, bringing its policy rate to levels unseen in 31 years.

According to four sources familiar with the BOJ's thinking, this hike will likely be followed by further tightening if price pressures continue to rise.

The BOJ expects financial conditions to remain loose even at a rate of 1.25%, but is keeping a close eye on inflation risks, particularly given the yen's recent rebound and renewed concerns over fuel prices.

Analysts polled by Reuters expect the BOJ to hike rates to 1.5% by end-March next year and then to 1.75% in the second quarter of 2027, with most seeing the terminal rate as being at least 1.75%.