BoJ Set to Hike Rates as Inflation and Yen Pressure Mount

The Bank of Japan is set to raise interest rates again on Friday in response to inflation caused by surging energy prices and a weak yen. This move comes under pressure from Washington, which is watching the situation closely.

Markets are awaiting the US Federal Reserve's decision on Wednesday, following last week's increase by the European Central Bank. While there is some suspense among BoJ members, most expect a 0.25 percentage point hike to 1.25 percent, the highest level in over three decades.

The last interest rate hike was in June. The pressure on officials to lift borrowing costs has increased as oil prices continue to rise due to the Middle East crisis. This is expected to keep upward pressure on inflation, which accelerated towards the two percent target set by the BoJ in July.

Takehiko Nakao, Japan's former currency chief and former president of the Asian Development Bank, said a hike to 1.25 percent at the September policy meeting has already been priced in. He warned that if the response is delayed, interest rates may need to be raised sharply to contain inflation.