BOJ weighs 50-basis-point hike as markets expect 25-point increase

  • Bank of Japan is weighing whether to raise its policy rate by 50 basis points.
  • September 17-18 meeting consensus calls for a 25-basis-point increase to 1.25%.
  • Bank lending rose 5.4% year-on-year in August as financial conditions remained accommodative.

The Bank of Japan is considering whether to accelerate policy tightening but is unlikely to deliver a 50-basis-point increase at its September 17-18 meeting, people familiar with its thinking said. Markets broadly expect a conventional 25-basis-point hike that would lift the policy rate to 1.25%. The central bank began its current tightening cycle in 2024 and has raised rates in 25-basis-point increments at a pace of roughly twice a year. Inflation pressures have intensified because of a tight domestic labor market, higher import costs caused by the weak yen and the Middle East conflict. The BOJ is considering increasing the frequency of rate hikes to about once a quarter, but officials and analysts say a larger move now could unsettle markets and suggest desperation rather than confidence. Governor Kazuo Ueda has said economic and price conditions remain broadly in line with projections and that the cumulative effects of five previous rate increases require careful assessment. The yen's recovery to around 153 per dollar, from a 40-year low near 164 in July, has also reduced pressure for an outsized hike.

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