Bank of Japan: Gradual normalisation path outlined – Standard Chartered

Standard Chartered analysts Chong Hoon Park and Nicholas Chia anticipate the Bank of Japan (BoJ) will raise its policy rate by 25 basis points to 1.25% during the September 17-18 meeting. The duo perceive this move as proactive, considering the economy's capacity to withstand a further rate increase. However, they expect a more measured pace of policy normalization later on, due to sluggish growth and fiscal constraints.

The BoJ is set to increase the policy rate by 25 basis points to 1.25% during its September 17-18 meeting, avoiding a hawkish tone. The Japanese economy seems to be able to handle another modest hike: Q2 GDP growth was upgraded, exports remain strong, investment indicators are robust, and real wages are on the rise. Inflation concerns are also rising as higher energy prices and a weaker yen flow through the supply chain.

While consumption remains weak, most recent inflation pressure is imported, JGB yields have surged, and higher borrowing costs are starting to strain Japan's fiscal position. Consequently, the analysts view the September rate hike as a preemptive action, followed by a more patient phase of policy normalization.