BOJ to Signal Hawkish Resolve Amid Rising Price Pressures

The Bank of Japan (BOJ) is set to keep interest rates steady at its two-day meeting ending on Friday, July 31. However, analysts expect a hawkish signal from the BOJ as mounting price pressures from the weak yen and Middle East conflict risk driving underlying inflation above its target.

With interest rates already hiked in June to a 31-year high, the BOJ is seen signaling its readiness to tighten further to tame price pressures. This move would echo those from other central banks focusing on inflation risks from the Iran war-induced energy shock.

The expected hawkish signals from the BOJ may come from board member Hajime Takata, who could propose a hike to 1.25%, according to some analysts. Governor Kazuo Ueda will face the challenge of talking down the yen bears through hawkish communication, particularly with looming prospects of US rate hikes weighing on the yen's value against the dollar.

Analysts expect core consumer inflation to climb back above 2% later this year as the recent surge in producer prices filters through to the broader economy. The BOJ's quarterly outlook report and Ueda's post-meeting news briefing will provide clues on how soon it could raise still-low borrowing costs.