BOJ rate hike signals faster pace of tightening amid inflation risks, weak yen: Economists
The Bank of Japan raised interest rates to a 31-year high of 1.25%. Economists suggest inflation risks and a weak yen could drive a faster pace of policy tightening ahead.
By Calvin Yang
The central bank raised rates on Friday (Sep 18) to a 31-year high of 1.25 per cent, pressing ahead with policy normalisation as inflation risks remain elevated.
The Bank of Japan’s latest interest rate hike remains part of a gradual normalisation of monetary policy, but economists say inflation risks and a weak yen could push policymakers to tighten more quickly in the months ahead.
The central bank raised rates on Friday (Sep 18) by 25 basis points to a 31-year high of 1.25 per cent.
The widely expected move, coming three months after its previous hike, takes borrowing costs closer to levels the BOJ considers neutral for the economy and marks another step away from decades of ultra-low interest rates.
JAPAN AND US BOTH MOVE AGAINST INFLATION
For investors, however, the bigger question is what comes next – and whether the shorter interval between rate hikes signals a faster pace of tightening.
“(BOJ) has already signalled very, very clearly over the last two weeks that it would hike interest rates. The big question is now how fast will it go from here?” said Martin Schulz, chief policy economist at Fujitsu.
Until now, the BOJ had moved at a more measured pace, he told CNA’s Asia First.
“So far, it was rather clear six-month steps, but now it is a three-month step. So, will it hike interest rates in December again? Most economists actually think so.”
Norihiro Yamaguchi, lead economist at Oxford Economics, said the BOJ remains in a phase of gradual policy normalisation.
But policymakers are also paying increasing attention to the risk of inflation overshooting, he told CNA’s Asia Now.
The advisory firm expects further rate hikes in December and April, which would take the policy rate to 1.75 per cent.
Inflation trends, developments in the United States and market expectations also point towards further tightening, Schulz said, adding that BOJ governor Kazuo Ueda remains focused primarily on conditions within Japan.
The BOJ’s decision comes shortly after the US Federal Reserve on Wednesday (Sep 16) raised interest rates for the first time since 2023.
The Fed lifted its benchmark rate by 25 basis points to a range of 3.75 per cent to 4 per cent, with chairman Kevin Warsh stressing that inflation remains “too high” for “too long”.
The Fed’s latest projections indicated another increase could come before the end of the year.
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https://www.channelnewsasia.com/world/bank-japan-boj-interest-rate-hike-inflation-yen-6394006
