The Bank of Japan is widely expected to raise its policy rate by 25 basis points to 1.25% at its September 17-18 meeting, rather than deliver a 50-basis-point increase. Sources familiar with the BOJ’s thinking said the central bank has little appetite for an unusually large move because near-term price pressures remain contained and households and companies are accustomed to decades of near-zero borrowing costs. At the same time, Middle East conflict, a tight labor market and higher import costs caused by the weak yen are prompting the BOJ to consider raising rates roughly once a quarter. Analysts say a large September hike could wrongly signal desperation or reinforce concerns that the BOJ is behind the curve on inflation. The BOJ began its current tightening cycle in 2024, raising rates in 25-basis-point increments about twice a year. Governor Kazuo Ueda said economic and price conditions were broadly tracking projections and that the cumulative effect of five previous rate increases needed careful assessment. The yen’s recovery to around 153 per dollar from a 40-year low near 164 has also reduced pressure for a larger move. Bank lending rose 5.4% year on year in August, while BOJ staff estimate the neutral policy-rate range at 1.1% to 2.5%.