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Bank Of Japan · Inflation · Interest Rates · Yen
The Bank of Japan (BOJ) is set to raise its policy interest rate to 1% from 0.75% next week, reaching a 31-year high, as it shifts focus to countering inflation risks stemming from the Middle East war and a weak yen.
This decision aligns the BOJ with other central banks tightening policy, including the European Central Bank's recent hike. Despite Governor Kazuo Ueda's absence due to illness, the remaining eight board members are expected to proceed with the hike, marking a significant pivot from the BOJ's previous radical stimulus approach towards conventional inflation fighting.
Economists polled by Reuters project the BOJ will further raise rates to 1.25% in the fourth quarter. Deputy Governor Shinichi Uchida will lead the post-meeting briefing, and investors will scrutinize his comments for clues on the pace of future increases, especially given the dilemma of avoiding yen depreciation while not pre-committing to rapid hikes.
The BOJ also plans to review its bond tapering strategy, considering a pause in government bond purchase reductions from April 2027 to stabilize the bond market amidst inflation concerns. Japan's wholesale prices rose 6.3% in May year-over-year, accelerating at the fastest pace in three years, indicating persistent price pressures.
