Sources say the Bank of Japan will likely raise its policy rate by 25bp next
week to 1.25%, a 31-year high. The move, coming three months after June’s hike,
signals an acceleration of tightening; the BOJ may flag it would speed further
if inflationary pressure rises. Officials expect financial conditions would
remain accommodative even at 1.25%. Markets will focus on Governor Ueda’s
post-meeting remarks for guidance on the pace of future hikes and the likely
terminal rate. Sources say the BOJ has no preset view of the terminal rate—it
will depend on how past hikes affect the economy and how much firms pass higher
costs to households—and there is no internal consensus on the speed of
tightening. Ueda is expected to avoid a firm timetable but may repeat July’s
warning that the BOJ could quicken hikes if financial conditions are judged too
loose.
