The Bank of Japan is expected to accelerate the pace of rate hikes in response to inflationary pressure and the weaker yen, but is reportedly not planning to increase the size of each hike. Expectations are growing that it will raise short-term interest rates by 25 basis points at next week's monetary policy meeting.
The Bank of Japan is widely expected to raise short-term interest rates by 25 basis points to 1.25% at its monetary policy meeting next week. The current rate-hike cycle has proceeded at a pace of several hikes a year since 2024, with the most recent hike implemented in June.
Bank of Japan officials have emphasized caution to avoid affecting the economic recovery, but the Bank is accelerating the pace of rate hikes as the weaker yen increases upward pressure on prices. Following the inauguration of Prime Minister Takaichi Sanae (高市早苗), concerns have also emerged that moves toward monetary and fiscal easing could influence the Bank of Japan's response.
Japan's inflationary pressure has intensified as tensions in the Middle East and the weaker yen have driven up oil prices, while the Japanese government has previously intervened in the foreign exchange market to address the yen's weakness. After the intervention from late April to early May, the yen's recovery proved short-lived. Coordinated intervention was also carried out in July, but some observers say its long-term effect was limited.
Experts believe the Bank of Japan is reluctant to raise rates by 50 basis points this month and assess that near-term upward pressure is being contained. Some also expect the Bank to continue making adjustments at a quarterly pace without heightening market concerns over delays in containing inflation.