BOJ eyeing September rate hike, faster pace of tightening, sources say

The Bank of Japan (BOJ) is reportedly considering raising interest rates as early as September, according to three sources familiar with its thinking. This move would reflect growing concerns over price pressures stemming from the Middle East conflict, robust global demand for artificial intelligence, and the yen's persistent downtrend.

The BOJ's last policy decision in June raised rates to a 31-year high of 1%, but it maintained a steady stance last month. Yet, earlier this month, Governor Kazuo Ueda signaled a willingness to accelerate rate hikes if financial conditions were deemed too loose. The sources cite several factors contributing to the BOJ's alarm over inflation risks, including rising inflation expectations and elevated wholesale inflation.

Despite the yen's recent decline, analysts warn that its downtrend could continue to fuel import costs and prices, with the BOJ tasked with closely monitoring upside price risks as its policy rate edges closer to neutral levels.