The Bank of Japan (BOJ) is expected to raise its policy interest rate to 1.25% at its two-day meeting concluding on Friday, September 18th. This move would mark a 0.25 percentage point increase from the current 1% and represent the highest interest rate in Japan in 31 years. The decision is largely anticipated, with signals from BOJ members themselves and market analysts already pricing in the hike.
This impending rate hike is primarily driven by persistent inflation pressures, fueled by soaring oil costs. Additionally, the BOJ is under pressure to narrow the interest rate gap with the U.S. Federal Reserve, which recently raised its rates and is expected to implement another hike. A widening gap could further weaken the yen, leading to higher import costs and exacerbating inflation.
The yen's weakening against the dollar, reaching a 40-year low in July, has also played a role in the BOJ's decision. A joint intervention by the United States and Japan in late July to support the yen, though short-lived in its direct impact, increased pressure on the BOJ to accelerate rate hikes. While the BOJ is expected to raise rates, sources indicate that it may offer few clues on the timing and pace of future hikes, as there is no consensus within the board regarding the desirable speed of further tightening.
