At the BOJ’s July meeting, several Policy Board members expressed concern over upside risks to prices as the underlying inflation rate approached 2%, strengthening expectations that an additional rate hike as early as September was becoming increasingly likely.
Following the Bank of Japan’s monetary policy meeting on 30 and 31 July, several Policy Board members said that greater caution than before was needed regarding upside risks to prices. The meeting decided to leave the policy rate unchanged at its current level of 1%, but members indicated that the pace of future rate hikes could exceed market expectations.
One member pointed out that the underlying CPI inflation rate was running near 2%, suggesting that the pace of rate hikes could accelerate. Another said the economy had moved from a phase of “raising underlying inflation to 2%” to one of “preventing inflation from exceeding 2%,” and argued that the pace of reducing monetary accommodation should be accelerated.
Two other members said the BOJ should raise rates flexibly to address price risks while bringing the policy rate closer to a neutral level. Some also said the BOJ needed to respond flexibly to changes in overseas financial conditions and avoid locking itself into a fixed rate-hike rhythm.
Markets are increasingly expecting the BOJ to raise the policy rate from 1% to 1.25% as early as September, with some moves pricing in the possibility that it will reach 1.5% by year-end. The yen’s depreciation, higher import costs and growing global demand for AI were cited as upward pressures on prices.
Reuters reported that the BOJ governor’s press conference was consistent with the opinions released this time, and markets view an additional rate hike in September as the leading scenario.