BoJ set to hike rates as soon as September— Reuters
The Bank of Japan (BoJ) is set to raise interest rates as soon as September and is likely to hike more aggressively thereafter from the current pace of roughly twice a year, three sources familiar with its thinking told Reuters.
Such a move would reflect the Japanese central bank’s concerns over price pressures from the Middle East conflict, strong global AI demand and the Japanese Yen's weakness, which has persisted despite last month's rare US-Japan joint currency intervention.
One of the sources said, "An early rate hike has come into sight," indicating a strong chance the BoJ will raise rates at its next policy meeting on September 17 and 18.
The source stated, "The BoJ could also accelerate the pace of rate increases," a view echoed by another source.
Market reaction
At press time, the USD/JPY pair trades 0.04% lower at around 159.43.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
