BOJ set to raise policy rate at 2-day meeting to counter inflation risks
TOKYO (Kyodo) -- The Bank of Japan is expected to raise its policy interest rate to a 31-year high of 1.25 percent from 1 percent at a two-day policy
The Bank of Japan (BOJ) is poised to increase its policy interest rate to a 31-year high of 1.25% from the current 1% during a two-day meeting starting Thursday. This move is aimed at addressing growing inflationary risks stemming from higher oil prices and a weakened yen. The BOJ is planning to raise rates for the second time in three months, the shortest interval between increases since the central bank initiated its current cycle of rate hikes in March 2024.
The depreciation of the yen to its lowest level against the U.S. dollar in decades and a surge in crude oil prices due to the Middle East conflict have raised concerns that inflation could exceed the BOJ's expectations. Despite interventions by authorities, the U.S. dollar has risen above 160 yen. Nevertheless, the anticipation of a September rate hike by the BOJ has helped the yen recover moderately.
U.S. Treasury Secretary Scott Bessent has urged Japan to strengthen the yen and advocated for the Japanese central bank to increase interest rates. He met with Japanese Finance Minister Satsuki Katayama and BOJ Governor Kazuo Ueda in late September, as he is worried that a weaker yen could exacerbate inflation and further elevate Japanese bond yields, subsequently driving up U.S. Treasury yields and raising borrowing costs.
Earlier this month, Ueda indicated that the BOJ would deliberate on a rate hike at each meeting, including the September gathering. He emphasized the importance of evaluating economic and price developments before making a final decision. The BOJ is also contending with a complex political environment. Yields on Japanese government bonds are under pressure, reflecting market apprehensions about Japan's fiscal health under Prime Minister Sanae Takaichi's government.
Higher borrowing costs could impede economic growth by dampening capital spending, posing a challenge for the BOJ's efforts to curb inflation without undermining growth. The BOJ has scheduled two additional policy meetings this year, in October and December, with markets anticipating indications of whether the central bank will persist in raising rates and the pace of its anticipated actions.
Written by urgent.news from The Mainichi's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
