Sources: BOJ Expected to Hike Rates by 25BP Next Week, No Preset View on Terminal Rate

BlockBeats news, September 11 — According to sources, the Bank of Japan will raise interest rates next week, most likely by 25 basis points, and may hint that it will accelerate the pace of tightening in the future if price pressures increase the risk of inflation overshooting. A rate hike to 1.25% would push the BOJ's policy rate to a 31-year high. Acting again just three months after the last hike in June would also indicate an accelerated pace of tightening. Many within the central bank believe that, as the economy enters a moderate recovery and price pressures build, the conditions for another rate hike are falling into place. The central bank also expects that even if rates rise to 1.25%, financial conditions will remain accommodative. The market is watching for any clues from Governor Kazuo Ueda after the meeting on the future pace of rate hikes and how high rates could rise in this tightening cycle.

Sources said the BOJ may have no preset view on the terminal rate, which depends on how past rate hikes affect the economy and the extent to which companies pass on higher input costs to households. There is also no consensus within the BOJ on the speed of rate hikes. Ueda will avoid committing to a specific timetable for future rate hikes, but may repeat his July statement that the BOJ could accelerate rate hikes if it deems financial conditions too loose. (Jinshi)