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BoJ inflation risk seen as raising odds of rate hike in September or October

Rabobank flagged that Japan's core CPI could move above the BoJ’s 2% target, even as easing labor-market conditions reduce the chance of broader second-round effects.

Reported · Written up by our desk · Central Banks

Rabobank’s FX strategy team, as summarized by FXStreet, said Bank of Japan policy remains centered on core inflation and wage driven price pressure after years of deflation.

The note pointed to elevated oil prices and supply risks as a potential inflation tailwind, with the BoJ warning that core CPI could deviate above its 2% target.

Rabobank also highlighted that a loosening in Japan’s labor market lowers the likelihood of second order price effects, but it still sees scope for a BoJ tightening as early as September or October, depending on how inflation and expectations develop.

It added that if the Japanese government needs to respond more to concerns about fiscal discipline, it could matter for investor sentiment and JPY stabilization, even while the market currently weighs an October move more than September.

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