BOJ Signals Faster Rate Hikes as Inflation Risks Grow

The Bank of Japan is preparing for potentially faster and more regular interest rate hikes as policymakers seek to prevent inflation from overshooting their target, putting fresh attention on key economic data due this week.

Thursday’s Tankan business survey and Friday’s inflation figures could influence whether the BOJ considers another rate increase in October or waits until December. Stronger corporate inflation expectations or evidence of broader price pressures would strengthen the case for additional monetary tightening.

The BOJ recently raised its policy rate to 1.25%, meaning officials are likely to require significant evidence before approving another hike in October. Sources familiar with the central bank’s thinking said an immediate increase would become more likely if external shocks significantly raised inflation risks.

Governor Kazuo Ueda has indicated that consecutive rate hikes could be justified if inflation threatens to accelerate sharply or underlying price growth moves above the BOJ’s 2% target. At the same time, Ueda has emphasized the need to act pre-emptively rather than wait until aggressive tightening becomes necessary.

The yen remains under pressure, with USD/JPY trading around 156.90. Persistent currency weakness increases import costs and household expenses, adding another factor for policymakers to consider.

Former BOJ board member Makoto Sakurai expects the central bank to raise its policy rate from 1.25% to around 2% by June next year.

The BOJ has gradually shifted from focusing primarily on economic downside risks toward containing inflation. After ending its decade-long stimulus program in 2024, the central bank raised rates once that year and twice in 2025. It increased rates to 1% in June before another hike in September.

Upcoming data could prove crucial. Corporate inflation expectations were already at record levels three months ago, while Tokyo core consumer inflation is expected to accelerate to 2.4% in September from 1.8% in August.

The figures will feed into the BOJ’s quarterly economic forecasts next month. Its current projections show nationwide core inflation at 2.5% in fiscal 2026 and 2.4% in fiscal 2027, with any upward revisions potentially providing stronger signals about the timing and pace of future BOJ rate hikes.