The Bank of Japan, or BOJ, is likely to raise its policy interest rate by 0.25% next week and may signal further rate increases ahead, amid the risk that inflation will overshoot its target, according to a Reuters report citing four sources familiar with the BOJ's decision-making. If the BOJ raises rates by 0.25%, the policy rate would stand at 1.25%, a level not seen since 1995, and it would mark the BOJ's second rate hike this year, following a 0.25% increase in June. Data released today showed that inflation measured by the producer price index, or PPI, accelerated sharply in August, hitting a three-and-a-half-year high, as rising energy prices and a weaker yen pushed up business costs. Last week, BOJ Governor Kazuo Ueda signaled that the central bank would discuss a rate hike at its September meeting, especially as more signs emerge that Japanese inflation remains elevated and is proving hard to bring down. Markets will meanwhile watch closely for the BOJ's views on the peak rate the central bank wants to reach in this hiking cycle, with the Reuters report saying there is still no clear consensus within the BOJ on how high rates should go or how quickly they should rise.
BOJ set to hike policy rate 0.25% to 1.25% on accelerating inflation, pushing JGB yields up and bond prices down.
