The Bank of Japan plans to raise its policy rate to 1.25% from the current 1% at its monetary policy meeting in September, Kyodo News reported on the 8th.
According to the news agency, the central bank has settled on the plan ahead of its meeting on the 17th and 18th. A policy rate of 1.25% would be the highest in about 31 years.
Kyodo said the decision to move by 0.25 percentage point reflects the risk that rising oil prices and a weak yen will push inflation higher than expected. Brent crude has approached $100 a barrel amid escalating tensions between the United States and Iran. A weaker yen raises import prices and is a major driver of inflation. Because the wide gap between U.S. and Japanese interest rates is seen as a key reason for the yen's weakness, the central bank is viewed as moving preemptively. The yen weakened to around 152 per dollar, but that is still weaker than the 147 level recorded last year.
A hike this time would come just three months after the June meeting. That is faster than the pace so far: since ending negative interest rates in March 2024, the BOJ has raised rates once every six months. Kyodo said the central bank will make its final decision after reviewing economic and price conditions ahead of the meeting.
The United States is also pressing the BOJ to raise rates. Washington is wary that a weak yen and rising Japanese government bond yields could spill over into higher U.S. Treasury yields. Japan is the largest foreign holder of U.S. Treasurys. If Japanese authorities sell Treasurys to defend the yen, the rise in U.S. yields could accelerate.
U.S. Treasury Secretary Scott Bessent added to the pressure on the BOJ's rate decision on the 31st of last month, saying he was confident the Japanese government and the central bank would take steps leading to a stronger yen. In response, BOJ policy board member Hajime Takata, regarded as a leading hawk, told a news conference early this month that there was no need to limit the interval between rate increases to about once every six months or to fix the size of increases at 0.25 percentage point. BOJ Governor Kazuo Ueda also said after a Group of 20 finance ministers' meeting that the matter would be properly discussed at the policy meeting.
Revised second-quarter gross domestic product data released by Japan's Cabinet Office on the same day showed growth of 0.4% from the previous quarter, an upgrade from the initial estimate, which could add support for a rate increase.
