Bank of Japan seen lifting rates toward 2% as inflation pressure builds

Traders Union
All News
Regulators
BOJ rate hike as inflation builds

Highlights

Bank of Japan is expected to raise its policy rate to 1.5% at the Dec. 17-18 meeting, aiming for a 2% terminal rate with quarterly hikes.
Persistent inflation driven by higher food and energy costs, along with a weak yen, is strengthening the BOJ's case for continued tightening.
BOJ's accelerated rate hike pace and acknowledgment of core inflation hitting its 2% target have shifted market expectations toward imminent further increases.

Rate path points to December move

As reported by Reuters, Kameda said the Bank of Japan is likely to raise its policy rate to 1.5% at its Dec. 17-18 meeting and then continue tightening at roughly a quarterly pace until borrowing costs reach a terminal rate of 2%. He said the recent global market selloff that hit Japanese equities is unlikely to prevent action next month unless instability lasts into the run-up to the meeting.

Kameda said the central bank might pause only if the AI boom were to collapse in a way that triggers a severe downturn in U.S. growth and then damages Japan's economy. Otherwise, he said, Japan can absorb further rate increases because corporate profits remain strong and consumption is likely to draw support from a scheduled sales tax cut on food items.

He also said consumer inflation is likely to accelerate in the coming months as companies continue passing on costs, including higher food prices. Persistent energy costs and rising import prices linked to a weak yen are also adding to inflation pressure, reinforcing the case for further tightening.

Shift in BOJ stance reshapes market expectations

The Bank of Japan raised rates in September after a June increase, shortening the interval between moves compared with the roughly twice-yearly hikes in 2024 and 2025. Although it kept rates unchanged in October, the bank stressed its determination to counter inflation risk, supporting market expectations of another increase before year-end.

At that October meeting, the BOJ also said underlying inflation has reached its 2% target, a signal Kameda views as confirmation that the bank has entered a more hawkish phase. He said many of the indicators cited by the BOJ had already reached that threshold earlier, suggesting the formal acknowledgment came late because policymakers wanted to move cautiously after Japan's long period of weak price growth and deflation.

Kameda said the policy shift effectively began around June and July, when the BOJ started laying the groundwork for rate increases once every quarter. In his view, that keeps December as the most likely timing for the next move, with January the latest if markets remain unstable.

Our earlier analysis of the Nasdaq 100 (NDX) highlighted a sharp pullback driven by weakness in AI-linked stocks and renewed worries that higher interest rates could curb investment in the sector. We also noted that technical signals had turned decisively bearish, pointing to a high risk of further downside or sideways consolidation unless key resistance levels were reclaimed.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.