The report says that the BOJ is eyeing to raise interest rates as soon as the September meeting next month and could even consider hiking more aggressively thereafter. The thinking is that the Japanese central bank would want to move from its current pace of hiking roughly twice a year to a much faster one.
The sources noted that “an early rate hike has come into sight”, adding that the BOJ “could also accelerate the pace of rate increases”.
They also note that with underlying inflation nearing the 2% target, the BOJ must start to be more sensitive towards the upside risks to prices. Adding that given the current context, the BOJ may not want to wait too long before delivering the next rate hike.
Well, I don’t think the report is saying much of what we don’t already know about the BOJ. As things stand, market pricing is seeing the odds of a rate hike in September at ~61%. But for this year, traders are definitely seeing at least one more rate hike before we move to 2027 next. And there’s only three more meetings for the BOJ to deliver that i.e. September, October, December.
As for the supposed “quicker pace” of tightening, it’s tough to imagine the BOJ being that bold after having been so timid for so many years now. They could’ve dug themselves out of this hole many a time but refused to move in months where they could have and instead opted to “play it safe” by waiting on more data to justify their conviction.
Just looking back to the past year, we can already see two instances of that.
One was when Takaichi took up the post as prime minister, and the BOJ could have made their move in September or October. Instead, they waited and had to then move in December.
The other was in wanting to wait for the official outcome of the spring wage negotiations. And that was just bad or unlucky timing considering the US-Iran conflict. But still, they could’ve moved in January or March if they were bold enough to do so. Instead, they waited until June before deciding on that – which was very much delayed.
The only plausible reason I can imagine the BOJ having to move quicker on rates, is that there is a discreet promise between the US and Japan on the latest joint intervention. That being the US offering up help to defend the yen currency but Japan also has to play ball in getting the BOJ to raise interest rates at a faster pace.
So, there’s that.
This article was written by Justin Low at investinglive.com.