The Bank of Japan is considering additional rate hikes at an early stage, with the possibility of action from September onward being discussed. The focus is on US-Japan coordination to correct the yen's weakness and the future of the Bank of Japan's independence.
In its published Outlook for Economic Activity and Prices report, the Bank of Japan said that higher energy prices, stronger demand related to AI and the yen's recent depreciation would push up inflation. Against this backdrop, it forecast that CPI excluding fresh food would rise to above 2% in the second half of fiscal 2026, and pointed out that an early policy response should be considered if upside risks materialize. The report emphasized the importance of stabilizing the underlying inflation rate at around 2%.
The report implied that, if monetary policy is adjusted to prevent the underlying inflation rate from exceeding the target, the Bank could raise rates sooner than usual rather than being bound by the average interval between past rate hikes. After the June policy meeting, the next move would traditionally have been in December or January next year, but the wording suggests that action could also be taken in September or October.
Bank of Japan Governor Ueda Kazuo (植田和男) stated that discussions would be deepened at upcoming policy meetings while keeping upside risks to prices in mind.
It has been pointed out that coordinated US-Japan action to correct the yen's sharp depreciation and the Bank of Japan's rate-hike policy could become intertwined, affecting the independence of its policy management. The view has been expressed that this could pose risks to the domestic economy and corporate earnings.