Monetary policy: Japan's central bank apparently plans interest rate hike – yen gains
Because inflation risks and pressure on the local currency remain high, the Bank of Japan is likely to raise interest rates. Even in the long term, a tighter monetary policy is in prospect.
Frankfurt, Tokyo. The prospect of a more aggressive interest rate hike by the Japanese central bank has let the yen gain in value on Friday. The dollar lost 0.3 percent to 159.05 yen. The news agency Reuters reports, citing insiders, that the Bank of Japan (BoJ) could already raise interest rates in September and, moreover, consider a tighter monetary policy.
The current pace of about two hikes per year could be significantly increased. Currently, the key interest rate in Japan is 1.0 percent. Such a move would reflect the BoJ's growing concern about price pressure due to the Middle East conflict and the ongoing downward trend of the yen, which continues despite Japan and the US's recent joint intervention.
The currency has given back about half of the gains achieved through the foreign exchange market interventions at the end of July. As a result, import costs and prices for a wide range of goods are likely to continue to rise, according to analysts. Before the intervention, the Japanese currency had fallen to a 40-year low of almost 164 yen against the dollar.
"For the intervention to change the yen trend, a more restrictive stance by the Bank of Japan is required, which the market is already trying to price in but needs to be confirmed at the same time," said OCBC strategist Sim Moh Siong. The BOJ must act now. At the financial markets, an interest rate hike in September is already being priced in with a probability of almost 80 percent.
After the considerations became known, the yield on five-year Japanese government bonds rose to a record high. The central bank itself declined to comment. At its last meeting in July, the BoJ had left interest rates unchanged but had already issued the clearest warning about rising price pressure in a long time. Since exiting a massive ten-year economic stimulus program in 2024, the Bank of Japan has raised interest rates about twice a year, most recently in June, when it set the interest rates at a 31-year high of one percent.
Translated by urgent.news. Machine-written — may contain errors; check the original before relying on it.
