BOJ set to lift rates next week but offer few clues on terminal, sources say

The Bank of Japan (BOJ) is anticipated to raise interest rates next week, possibly by 25 basis points, according to four sources familiar with the bank's plans. A rate increase to 1.25 per cent would bring the BOJ's policy rate to levels not seen in 31 years. The central bank may signal a more aggressive tightening path if inflation risks intensify.

Despite a recent rebound in the yen, the BOJ remains vigilant about inflation risks due to the currency's past declines and rising fuel prices. The economy is projected to experience a moderate recovery, and price pressures are building. While the BOJ expects financial conditions to remain loose even at a 1.25 per cent rate, it continues to monitor inflation risks closely.

The BOJ's board member Kazuyuki Masu stated that underlying inflation is nearing 2 per cent, and he does not foresee a sharp overshoot at this time. Market participants expect a 1.25 per cent rate hike at the upcoming BOJ meeting, with some betting on a 50-basis-point increase. The BOJ's future rate hikes remain uncertain, with no clear consensus among members.