DBS Economist Predicts 25bps Rate Hike from Bank of Japan in September

DBS Group Research economist Ma Tieying is predicting that the Bank of Japan (BoJ) will raise interest rates by 25 basis points at its upcoming September meeting. The decision comes as economic, wage, and inflation conditions in Japan continue to firm up. According to recent data, Japan's final second-quarter GDP showed growth running at 1.4% quarter-on-quarter on a seasonally adjusted annual rate (saar) basis, or 0.9% year-over-year.

In addition to this economic growth, July wages in Japan rose, with total pay up 4.7% year-over-year and base wages up 4.1% year-over-year. Furthermore, underlying inflation measures are converging on the BoJ's 2% target.

Given these conditions, Ma Tieying expects a hawkish 25bps increase paired with guidance that keeps the pace of future moves flexible. A 50bps step or a sequence of back-to-back hikes at each meeting is seen as less probable.