BOJ Likely to Keep Hawkish Policy Pledge, Raise Rates Next Week, Sources Say

The Bank of Japan (BOJ) is expected to maintain its hawkish stance and raise interest rates next week, according to sources familiar with the central bank's thinking. The BOJ has been gradually tightening its monetary policy in response to rising inflation and a strengthening economy, and this latest move is seen as a continuation of that trend.

The BOJ's policy meeting is scheduled for January 17-18, 2025, and markets are pricing in a high probability of a rate hike. The central bank has been signaling its intention to raise rates in recent communications, and the latest data on inflation and economic activity support this view.

The BOJ's core CPI, which excludes fresh food and energy, has been rising steadily, reaching 1.8% in October 2024. This is above the central bank's 2% target and suggests that underlying inflationary pressures remain strong. Additionally, the BOJ's GDP outlook for FY2024 has been revised down, reflecting recent slumps in production related to the auto sector and natural disasters. However, the central bank is expected to raise its policy rate to 1.0% by the end of next year, indicating its commitment to achieving its inflation target.

The BOJ's decision to raise interest rates next week is also influenced by global financial market developments, such as the outcome of the US elections and the performance of the Japanese yen. The central bank is likely to consider these factors when deciding on its next move.

In conclusion, the BOJ is expected to keep its hawkish policy pledge and raise interest rates next week, as indicated by sources familiar with the central bank's thinking. The latest data on inflation and economic activity, as well as global financial market developments, support this view. The BOJ's commitment to achieving its 2% inflation target and maintaining a sustainable economic recovery is likely to guide its decision-making process.