BOJ Shifts Focus: Faster Rate Hikes Loom Amid Inflation Risks
The Bank of Japan (BOJ) is shifting its policy to prioritize fighting inflation, which may lead to faster and more frequent interest rate hikes. According to sources familiar with the BOJ's thinking, the central bank will likely raise rates if there are signs of heightening corporate inflation expectations in this week's Tankan survey or broadening price pressures in Friday's inflation data.
The BOJ raised its policy rate from 1.0% to 1.25% in September, and now policymakers believe that underlying inflation is converging around 2%. This change in approach means the BOJ will no longer delay raising interest rates for an extended period after each meeting.
BOJ Governor Kazuo Ueda has emphasized the central bank's readiness to act pre-emptively to prevent extreme measures, and sources indicate that this means the BOJ may raise rates even if there is no clear evidence of a sharp spike in price growth.
Former BOJ board member Makoto Sakurai expects the central bank to raise its policy rate to 2% by around June next year. With underlying inflation close to 2%, Ueda believes that the BOJ's policy has entered a new phase focused on forestalling inflation risks, paving the way for speedier rate hikes.