(MaceNews) – Market participants are looking for any clues to whether the Bank of Japan board is getting closer to raising interest rates further in September, instead of waiting until October, when the board updates its economic projections and risk analysis in the quarterly Outlook Report.
BOJ Governor Kazuo Ueda clearly indicated to reporters after the last policy meeting on July 30-31 that the board will have a serious debate on the pros and cons of hiking rates “at the next meeting onward” in the face of growing upside risks to inflation. He repeated that the current policy rate at 1% is still “accommodative” to economic activity and that rising bankruptcies, particularly among smaller firms, have been caused by labor shortages and rising costs, not so much by higher interest payments.
“Given that the underlying inflation rate is currently approaching the price stability target of 2%, I think we need to be mindful of upside risks to inflation more than ever,” he told a news conference on July 31. “With this in mind, we will engage in thorough discussions at our next policy meeting onward.”
Asked whether the BOJ’s normalization process to raise rates further to a more neutral level may go against the Takaichi government’s plans to boost fiscal spending and promote capital investment in growth areas, Ueda replied that securing price stability proactively should support the government’s pro-growth strategy. If the central bank falls behind the curve – failing to raise rates fast enough to cool off inflation – it would be forced to jack up rates drastically and could hurt economic growth, he said.
In the BOJ’s informal surveys, bank officials often ask what factors are hampering capital investment. High interest rates are rarely mentioned and instead, labor shortages and rising material prices are cited by an overwhelming majority, Ueda said. “Given this, I believe it is fair to say that price stability is, to some extent, important for promoting investment.”
Ahead of the Sept. 17-18 meeting, three public speeches by board members are scheduled. Deputy Governor Ryozo Himino, a former financial industry regulator, speaks to business leaders in Saitama, just north of Tokyo, on Aug. 27, followed by Hajime Takata, who came from Mizuho Securities, in the northern city of Sapporo on Sept. 2 and Kazuyuki Masu, a former executive at the Mitsubishi Corp. trading firm in Fukui in central Japan on Sept. 10.
At the latest meeting on July 30-31, when the board decided in an 8-to-1 vote to leave the target for the overnight interest rate at 1%, Takata called for an immediate rate hike to 1.25%, arguing that the central bank has entered a new phase in which it needs to nimbly respond to upside risks to inflation caused by “demand shocks” from overseas and to changes in overseas financial conditions.
The focus is on how Himino will describe the weaker-than-expected 1.1% annualized GDP growth in the April-June quarter and whether that can be a reason for the BOJ to be more cautious about raising rates. Private consumption, business investment and public works spending all unexpectedly fell. Energy and transportation costs remained elevated amid the lingering Mideast conflict and the weak yen kept import prices high. Widespread labor shortages might have delayed implementation of capital investment projects.
All of the Q2 growth came from external demand but that was a result of a 1.5% plunge in imports after the blockade of the Strait of Hormuz led to a sharp decline in crude oil imports from the Mideast Gulf. Exports showed some resilience, up 0.5%, as the drag from stiff U.S. tariffs on autos and metals had waned.
Just a few hours before board members vote on their latest policy stance on Sept. 18, they get to see the August national CPI data. In the coming week, they will digest the Tokyo CPI for August, which is likely to set the tone for the national average inflation rate. For producer prices, the board will see the August data on Sept. 11.
Tuesday, Aug. 25
1400 JST (0500 GMT/0100 EDT Tuesday, Aug. 25) The Bank of Japan releases its core measures of consumer price index for July. The BOJ excludes institutional factors: the effects of sales tax rate changes, free education, fuel and utility subsidies, reduction in mobile phone charges in 2021 and travel subsidy programs during the pandemic.
Data from the Ministry of Internal Affairs and Communications released on Aug. 21 showed that Japan’s consumer inflation continued to accelerate in July under the new 2025 base year as overall energy prices posted a gain after months of declines in light of a much smaller drop in utilities. The weak yen has made imports more expensive and retailers are reflecting higher labor, materials, packaging and transportation costs amid widespread worker shortages and the lingering Mideast conflict.
The year-on-year increase in the core CPI (excluding fresh food) accelerated to 1.8% in July from 1.6% in June as expected. It is still tame compared to a recent peak of 3.7% hit in May 2025. The annual rate of the total CPI also firmed to 1.9% after edging up to 1.6% in June (revised down under the 2025 base year from 1.7% under the previous formula) from 1.5% in May. Overall inflation has come down gradually from 4.0% at the start of 2025.
Underlying inflation, as measured by the core-core CPI that exclude fresh food and energy, picked up to 1.9% after easing to 1.7% in June from 1.8% in May. It is well below the recent peak of 3.4% reached in June 2025.
The BOJ’s core CPI (excluding fresh food and institutional factors) rose 2.7% on the year in June on the 2020 base year after rising at the same rate in May while the annual rate of the government’s core CPI (excluding fresh food) rose to 1.6% in June from 1.4% in May, due to a smaller drop in gasoline prices and larger markups in other fuels, which limited the impact of a continued moderation in processed food markups.
The Ministry of Internal Affairs and Communications has said the net effect of updating the weighting of items in the CPI basket of goods and services and resetting the base year among other changes is zero to a slight 0.1 percentage downward shift in the consumer price index in the first six months of 2026.
The BOJ’s another core measure, the CPI minus fresh food, energy and institutional factors, continued to slow to a nearly two-year low of a 2.0% increase on the year in June after rises of 2.1% in May and 2.2% in April. The annual rate of the government’s core-core CPI (excluding fresh food and energy) stood at 1.7% in June under both the 2025 and 2020 base years, easing further from 1.8% in March and 1.9% in April.
Thursday, Aug. 27
1030 JST (0130 GMT Thursday, Aug. 27/2130 EDT Wednesday, Aug. 26) Bank of Japan Deputy Governor Ryozo Himino, a former financial industry regulator, speaks to business leaders in Saitama, just north of Tokyo. He is expected to discuss the latest economic and financial conditions as well as the bank’s decision to maintain its policy interest rate at 1% last month.
Thursday, Aug. 27
1400 JST (0500 GMT/0100 EDT Thursday, Aug. 27) BOJ Deputy Governor Himino holds a news conference in Saitama.
Thursday, Aug. 27
– TBA The Cabinet Office releases the government’s monthly economic report for July. Last month, it was released at around 1735 JST on July 29 (0835 GMT/0435 EDT the same day).
In the July report, the government remained confident that its fuel and utility subsidies as well as solid wage hikes by many firms should support the economy’s gradual recovery from the pandemic slump while warning that higher energy costs amid the lingering Mideast conflict could trigger widespread markups in consumer prices. It maintained its overview, saying that the economy was “recovering at a moderate pace but the impact of the situation in the Middle East needs a close attention.”
Friday, Aug. 28
0830 JST (2330 GMT/1930 EDT Thursday, Aug. 27) The Ministry of Internal Affairs and Communications releases August Tokyo CPI.
Mace News median: total CPI +2.0% y/y (range: +1.8% to +2.2%) vs. July +2.0%; core CPI (ex-fresh food) +1.8% (range: +1.7% to +2.1%) vs. July +1.9%; core-core CPI (ex-fresh food, energy) +2.1% (range: +2.0% to +2.2%) vs. July +2.0%
Consumer inflation in Tokyo, a leading indicator of the national trend, is expected to be mixed in August as overall energy prices are ticking up and many firms are passing higher costs onto consumers. The weak yen has made imports more expensive and retailers are reflecting higher labor, materials, packaging and transportation costs amid widespread worker shortages and the lingering Mideast conflict.
This report may support an argument for an additional interest rate hike among Bank of Japan board members when they meet on Sept. 17-18 after they decided to stand pat in July to assess the impact of its fifth rate hike in the current cycle conducted in June.
All three key CPI measures are forecast to be around the Bank of Japan’s 2% target, with the core reading just below the level, as fuel subsides have capped gasoline and diesel prices nationwide. In addition to city water subsides, families in the Tokyo metropolitan area also benefit from free daycare services. At the same time, upward pressures from sustained wage hikes and the Iran war mitigated the price-cutting impact of fuel subsides in place since mid-March, which has capped the national average regular gasoline price at ¥170 per liter.
Under the new 2025 base year, the core measure (excluding fresh food) is expected to post a 1.8% increase on year after the annual rate rose to 1.9% in July from 1.6% in June. The core rate hit a recent peak at 3.6% in May 2025 when processed food price hikes were sharp in the aftermath of domestic rice shortages.
The annual rate of the total CPI also is seen stable at 2.0% after climbing to 2.0% in July from 1.7% in June. The year-on-year increase in the core-core CPI (excluding fresh food and energy), which is not directly impacted by fuel subsidies, is expected to edge up further to 2.1% after ticking up to 2.0% in July from 1.9% in June.
At this latest meeting on July 30-31, the BOJ’s nine-member board decided to leave the target for the overnight interest rate at 1% in an 8 to 1 vote. The board again vowed to “continue to raise the policy interest rate and adjust the degree of monetary accommodation” in response to developments in growth and inflation. Underlying inflation is nearing the bank’s 2% price stability target and financial conditions are accommodative, it noted.
Friday, Aug. 28
0830 JST (2330 GMT/1930 EDT Thursday, Aug. 27) The Ministry of Internal Affairs and Communications releases July unemployment rate.
Mace News median: 2.5% (range: 2.4% to 2.6%) vs. 2.5% in June, 2.5% in May, 2.5% in April, 2.7% in March, 2.6% in February, 2.7% in January, 2.6% from August to December 2025, 2.4% in July, which was a four-month low.
The seasonally adjusted unemployment rate in Japan is expected to remain low and stable at 2.5% in July after being steady in the previous two months, reflecting widespread labor shortages. It fell to the current level in April from 2.7% in March.
The national average unemployment remains well below the rates in other major economies. Labor shortages continue in the sectors with long work hours and lower pay, notably daycare, medical, transport and construction. Last year, unemployment was stuck at 2.6% from September to December after rising to the level in August from a five-month low of 2.4% in July.
Payrolls are expected to post a sixth straight rise after marking a rare year-on-year drop in January. The increase in June was led by manufacturing after the sector posted their first gain in many months in May. Learning support and medical/welfare services also propped up employment. In recent months, employment gains have been in both regular and non-regular positions (sharp gains in women and non-regular jobs) after the total number of employed unexpectedly posted its first year-on-year drop in 42 months in January for one-off factors.
The government continues to describe employment conditions as “showing signs of improvement” in its latest monthly economic report for July, unchanged since the last upgrade for the category in June 2023.