"Year-End BOJ Policy Rate to Rise from 1.25% to 1.50%... Intensifying Inflationary Pressure" [Weekend Money]

There is a forecast that the Bank of Japan (BOJ), Japan’s central bank, will raise its short-term policy rate—the benchmark interest rate—to around 1.50% by the end of this year.

An employee is showing Japanese yen at the Counterfeit Response Center of Hana Bank Seoul. Photo by Yonhap News Agency

On May 2, KB Securities stated in its report “Japan BOJ review: Possibility of a Year-End Final Rate Hike to 1.5%” that the growing inflationary pressure could lead the BOJ to begin raising its policy rate starting in June.

There is also an increasing possibility that the final policy rate at the end of the year will be revised upward from “around 1.25%” to “around 1.50%.”

On April 28, the Bank of Japan kept its benchmark interest rate unchanged at around 0.75% during its Monetary Policy Meeting. Six committee members acknowledged the upside risk to inflation but decided to monitor the situation further. In contrast, three members expressed minority opinions in favor of a rate hike to address the inflation risk.

Concerns over inflation are mounting. In this meeting, the Bank of Japan lowered its domestic gross domestic product (GDP) growth forecast from 1.0% in January to 0.5%, while raising its core consumer price index (CPI) inflation outlook from 1.9% to 2.8%. This was due to the sharp rise in oil prices caused by the U.S.-Iran war. The BOJ also added a statement emphasizing the need “to be mindful of the risk that inflation may significantly exceed the target and adversely affect the economy.”

With rising oil prices compounded by wage increases, inflation is expected to accelerate further. This year’s spring labor negotiations in Japan have resulted in a broader trend of wage hikes, including higher wage increases for small and medium-sized enterprises and non-regular workers. Under these circumstances, corporate margin pressures are intensifying, fueling inflation.

Ryu Jin-yi, a researcher at KB Securities, said, “In Japan, where the fiscal year begins in April, next month’s consumer price index (CPI) data—released before the next monetary policy meeting—will provide confirmation of inflationary pressures.”

This content was produced with the assistance of AI translation services.