The Bank of Japan (BOJ) is widely expected to increase interest rates by 25 basis points at the conclusion of its two-day policy meeting this Friday, potentially pushing the benchmark rate to 1.25%, according to a CNBC survey. This move would mark the highest interest rate level in thirty years and signal an acceleration of the central bank’s tightening cycle.
Approximately 89% of the 18 economists and analysts surveyed indicated they anticipate the hike, citing rising inflation, consistent wage growth, and growing pressure from the United States government. The proposed rate increase would be faster than the six-month intervals the BOJ has maintained since initiating its policy normalization process in March 2024. The central bank last adjusted rates in June.
Takayuki Kin, an executive economist at Nomura Research Institute and former BOJ policy board member, noted that the Trump administration has effectively neutralized any efforts by Prime Minister Sanae Takaichi’s administration to obstruct rate hikes. “Consequently, the Bank of Japan has gained a free hand to proceed with rate hikes,” Kin said.
US Treasury Secretary Scott Bessent recently urged BOJ Governor Kazuo Ueda to take “decisive market and monetary steps” during a G20 meeting earlier this month. Bessent later emphasized on social media the importance of anchoring inflation expectations and preventing excessive volatility in currency markets.
Recent economic data supports the case for tightening. Japan’s headline inflation rate reached 1.9% in July, the highest level of the year, largely driven by elevated energy costs linked to the Iran conflict. Simultaneously, real wages increased by 2.4% for the seventh consecutive month.
Despite the consensus, some analysts hold divergent views. Jesper Koll of Monex Group predicted a larger 50-basis-point hike in a “one and done” move. Conversely, Carlos Casanova, senior Asia economist at UBP, expects the BOJ to maintain current rates, arguing that data does not yet justify a regime shift and that risks from Iran tensions remain significant.
Regarding potential dissent within the BOJ board, roughly one-third of respondents identified Toichiro Asada and Ayano Sato as likely opponents. Both are considered reflationists who were appointed by Prime Minister Takaichi earlier this year.
Looking ahead, about 61% of respondents forecast the yen will trade between 155 and 160 per dollar over the next month. Homin Lee, senior macro strategist at Lombard Odier, stated that while the BOJ’s hawkish stance should keep the yen above 160, pushing it past 150 will be difficult due to anticipated pushback from government and business officials against rapid currency appreciation.
So the US is essentially running Japanese monetary policy now? Seems a bit much for central bank independence.
Will this actually cool inflation, or just crush the mortgage holders who are already struggling with costs?
Thirty years! It feels like the BOJ has been stuck in low-rate purgatory forever. About time.