ING economists Deepali Bhargava and Lynn Song anticipate that the Bank of Japan (BoJ) will raise its policy rate by 25 basis points to 1.25% on Friday, citing ongoing price pressures in the Japanese economy [1]. Their base case scenario includes two additional 25 basis point hikes in January and April 2027, which would bring the policy rate to 1.75% [1]. The economists suggest that policymakers may prefer to front-load tightening while inflation remains elevated, and before the policy backdrop becomes more complicated after April [1].
Japan is scheduled to release its August inflation data earlier on the same day as the expected rate hike. Market consensus anticipates headline inflation to increase to 2.0% year-on-year, while core inflation is projected to remain unchanged at 1.8% [1]. Additionally, upcoming data on Japanese trade and core machine orders will be closely watched by markets for further confirmation of economic trends [1].
The ING analysis highlights that the BoJ's tightening path is in focus, with the expectation that rate hikes will be front-loaded to address persistent inflation pressures. This approach may have medium market impact, as investors and analysts monitor inflation and other economic indicators for signals on future monetary policy direction [1].
CONCLUSION
ING expects the Bank of Japan to raise its policy rate by 25bp to 1.25% amid persistent inflation, with two further hikes projected in early 2027. Market consensus sees headline inflation rising to 2.0% year-on-year, reinforcing the tightening outlook. The BoJ's actions and upcoming economic data will be closely watched for confirmation of this trajectory.