Key facts
- Japan's wholesale inflation rose 7.2% year-over-year in July.
- The yen-based import price index increased by 29.1% year-on-year in July.
- Market participants see a 76% chance of a Bank of Japan rate hike in September.
- Joint intervention by Japan and the U.S. Treasury aimed to set a ceiling for the dollar-yen rate around 160.
- Mitsuhiro Furusawa, former top currency diplomat, stated Japan may conduct joint yen intervention at any time and signal faster rate hikes.
- Furusawa suggested the BOJ might raise rates to 1.5%-1.75% and continue hiking through fiscal year 2027.
Japan's wholesale inflation rose 7.2% year-over-year in July, reinforcing expectations that the Bank of Japan (BOJ) may raise interest rates in September. This follows joint intervention by Japan and the U.S. Treasury to support the yen, which briefly strengthened the currency. However, the yen has since weakened, and traders are now pricing in further rate hikes this year, increasing pressure on the BOJ to act. The yen-based import price index also rose significantly, indicating that currency weakness is contributing to inflation. Mitsuhiro Furusawa, Tokyo's former top currency diplomat, stated that Japan may conduct joint yen intervention "at any time" and signal the chance of faster-than-expected interest rate hikes to stem the currency's falls, adding that the yen is "clearly too weak" at current levels and hurting the economy by boosting import costs. He suggested the BOJ might raise rates to 1.5% to 1.75% and continue hiking through fiscal year 2027, provided the economy does not lose momentum. Markets now see a 76% chance of a hike in September.