The BOJ is likely to raise rates by 0.25% at its September meeting, taking the policy rate to 1.25%. Subsequent rate hikes are expected, with 1.75% seen as the most likely terminal level.
The BOJ is likely to raise rates by 0.25% at its 17–18 September Monetary Policy Meeting (MPM), taking the policy rate to 1.25%. The market is also discussing the possibility of a 0.5% rate hike, but the author expects the BOJ not to opt for 0.5%.
The next rate hike after September is expected to come in December this year or January next year, followed by a move toward 1.75% by June or July next year. These expectations could be revised depending on price developments.
The August corporate goods price index and August national consumer price index will be key indicators to watch. If the risk of an upside surprise in prices increases, risk language is likely to remain in the statement following the September MPM. Attention will also focus on the BOJ's speech in Osaka.
In the debate over the neutral rate, cautious policy management is expected after the policy rate reaches 1.5%, and the implications could change once the rate rises above the lower end of the 1.1%–2.5% neutral range. Four MPMs are scheduled for 2027, and any of them could be a candidate for reaching 1.75%.