The Bank of Japan is expected to raise rates by 0.25% at its next policy meeting, with the next rate hike anticipated in December this year or January next year. The focus of the discussion will be developments toward the neutral rate and how the wording in the Outlook Report is handled.
The Bank of Japan’s policy meeting will be held on 17 and 18 September, and the policy rate is likely to be raised by 0.25% to 1.25%. Although some in the market have pointed to the possibility of a 0.5% hike, the author believes a surprise move is unlikely.
The next rate hike after September is considered most likely to come in December this year or January next year, while the pace of subsequent hikes is expected to vary depending on conditions. The neutral rate is currently estimated to be in the 1.1%–2.5% range, and the BOJ is highly likely to adopt a more cautious stance after reaching 1.5%.
The timing of future rate hikes will be influenced by developments in inflation risks. Depending on the results of the August corporate goods price index and the August nationwide consumer price index, attention will focus on whether the wording in the Outlook Report is retained.
Based on the schedule of policy meetings in 2027, discussions aimed at reaching 1.75% are expected to continue at meetings from July onward, and the final rate-hike level may vary above or below that level.
The author’s current base-case scenario is for the policy rate to be raised to 1.75% in June or July next year, with 1.75% becoming the terminal rate.