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2026-09-16 11:00:11
[Bank of Japan Expected to Raise Rates to 1.25%, a 31-Year High; Governor Ueda Faces Communication Challenges] (1) The Bank of Japan is expected to raise its policy rate from 1% to 1.25% at its meeting on September 17-18, the highest in 31 years and the first rate hike in three months. This move will join the tightening efforts of the European Central Bank and the Federal Reserve to address inflationary pressures caused by soaring oil prices. (2) After the rate hike, the interest rate will enter the neutral interest rate range estimated by the Bank of Japan of 1.1% to 2.5%, marking a further break away from decades of ultra-low interest rates. The market has almost fully priced in this rate hike, and investors are watching whether Governor Kazuo Ueda will release any signals about future rate hikes at the press conference after the meeting. (3) Sources say that many within the Bank of Japan believe there is still room for several rate hikes before reaching the neutral interest rate, but they prefer a 25 basis point hike this time rather than a larger one; Toshiro Asada, who voted against it in June, may oppose it again. Hawkish member Naoki Tamura believes the neutral interest rate is around 2%. (4) Ueda faces communication challenges: a dovish stance could trigger a yen sell-off and push up import prices; a hawkish stance could disrupt the bond market. Japanese government bonds have already been sold off due to market concerns about Japan's fiscal situation, with yields rising to a 30-year high. Analysts say that given the uncertainty, it is best to remain ambiguous. (5) Prime Minister Sanae Takaichi's expansionary fiscal policy has complicated the Bank of Japan's decision-making. IMF Managing Director Kristalina Georgieva warned that large-scale fiscal support from governments is posing challenges to central banks.
