The Bank of Japan appears focused on a rate hike at its 17-18 September monetary policy meeting. Markets are pricing in a 0.25 percentage-point hike, and the rate-hike cycle is increasingly likely to accelerate to intervals of around 3 months.
The possibility of the Bank of Japan raising its policy rate to 1.25% at its next meeting is increasing, with the market currently pricing in a rate hike probability of approximately 80%. Whereas previous rate hikes had been spaced at intervals of just under 6 months, an additional hike is now expected within a shorter period. This has fueled expectations of an acceleration in the pace of rate hikes.
Against a backdrop of soaring crude oil prices and the risk of a renewed acceleration in inflation, there is growing recognition that inflation could rise above 2%. With the yen weakening, the impact of yen-buying intervention by Japan and the United States, as well as references to U.S. monetary policy, are also attracting market attention as factors behind a faster pace of rate hikes.
At a press conference following the July policy meeting, Governor Ueda Kazuo (植田 和男) pointed to the risk that underlying inflation could overshoot above 2% and referred to the possibility of raising the pace of rate hikes to contain that risk. These remarks were interpreted as indicating greater flexibility in the overall conduct of monetary policy.
In the Policy Board members’ “Main Opinions” from July, views favoring an early rate hike and a positive stance toward rate hikes stood out, and it is inferred that at least 3 members supported a rate hike at the September meeting. The executive leadership, including the Governor, is also believed to have shifted to a more positive stance toward an early rate hike.