BOJ Set to Hike Policy Rate to 1.25% Amid Rising Oil Prices

The Bank of Japan is expected to raise its policy rate from 1% to 1.25% in September, according to Kyodo News. This move would be the highest interest rate in about 31 years and would come just three months after the June meeting. The central bank has settled on this plan ahead of its monetary policy meeting on the 17th and 18th.

The decision to increase the policy rate by 0.25 percentage points reflects concerns that rising oil prices and a weak yen will push inflation higher than expected. Brent crude has approached $100 a barrel amid escalating tensions between the United States and Iran, while the yen has weakened to around 152 per dollar.

The Bank of Japan is seen as moving preemptively due to the wide gap between U.S. and Japanese interest rates, which is viewed as a key reason for the yen's weakness. This move is also being pressured by the United States, which is wary that a weak yen and rising Japanese government bond yields could spill over into higher U.S. Treasury yields.

Revised second-quarter gross domestic product data released by Japan's Cabinet Office on the same day showed growth of 0.4% from the previous quarter, an upgrade from the initial estimate, which could add support for a rate increase.