BoJ to Maintain Rates, But Hawkish Tone Expected

The Bank of Japan (BoJ) is expected to maintain its interest rate at 1% this Friday, but investors are more interested in the potential signals from Governor Kazuo Ueda on the bank's future policy roadmap. As inflationary pressures and the yen's depreciation continue to rise, experts expect the BoJ to hike rates in October.

Japan is one of the countries most affected by global inflationary pressures, with annual inflation standing at 1.7% in June and core inflation reaching 1.6%. The US dollar-Japanese yen exchange rate has reached a 40-year high of 168.93, fueling expectations that the country's economic authorities may intervene in the currency market.

Marcel Thieliant, head of Asia-Pacific at Capital Economics, believes the BoJ will face downside risks to economic activity due to renewed rise in oil prices and will prepare for a rate hike in October. He expects rates to reach above-consensus 2% by end-2027.