BOJ Shifts Stance on Inflation Ahead of Rate Hike Acceleration

Japan's Bank of Japan (BOJ) may shift its stance on inflation from tolerance to fighting it, according to Tsutomu Watanabe, a former central bank official and expert on price trends.

This change in posture could happen as soon as December, which would mean the BOJ will accelerate its rate hikes. The third wave of inflation is attributed to the Middle East conflict, following previous waves triggered by the Ukraine war and domestic wage hikes.

Watanabe estimates that consumer inflation excluding fresh food and fuel will peak near 3% around March next year before slowing down towards the BOJ's 2% target. However, underlying inflation is already close to 2%, driven by a tight labor market and rising price pressures.

The BOJ's current slow pace of rate hikes may not be enough to curb inflation, Watanabe warns. If the BOJ maintains this pace, he predicts that underlying inflation could overshoot 2% around July next year.