Home · Business · Oct 7 archive
Central Banks Raise Rates Amid Persistent Inflation Concerns
Confirmed
In Short: The Bank of Japan raised interest rates to a 31-year high, joining other major central banks in their efforts to combat persistent inflation.
The Bank of Japan (BOJ) raised its key interest rate to a 31-year high of 1.25 percent on Friday, signaling that more hikes may come as it seeks to stabilize inflation at around 2 percent to avoid adverse effects on the economy.
In a statement, the BOJ said while economic and price developments are moving in line with its baseline forecast, there was a risk of underlying inflation deviating from its 2% target.
Core consumer inflation held steady near the BOJ's 2% target in August, as companies continued to pass on rising costs for a wide range of food and grocery items.
The BOJ's move follows rate hikes by its European and US peers, highlighting central banks' focus on global inflation risks caused by the Iran war-induced energy cost spike, expansionary fiscal policies, and surging demand for AI investment.
The rebound in oil prices has intensified UK inflation concerns, reinforcing expectations that interest rates will remain higher for longer.
Brent crude moved back above $100 a barrel, stoking concerns over persistent elevated prices driven by Iran war-related supply disruptions.
Federal Reserve Governor Michael Barr said Wednesday the central bank will “likely” raise interest rates again to counter persistent inflation, after it did so last week for the first time in three-plus years.
US inflation remains too high and is broad-based, extending beyond recent energy price increases, with persistent pressures across services and other parts of the economy, said Minneapolis Fed President Neel Kashkari.
The latest projections suggest that inflation in the US will remain well above its 2 per cent target in 2026.
While markets largely anticipate the central bank will keep rates on hold at its October policy meeting, CME's FedWatch tool indicates traders are still pricing in a 78.3% probability of a rate hike in December.
Another rate hike to 1.50% before the end of the year would seem a decent bet, according to some analysts.
The yield on the benchmark US 10-year Treasury note climbed to its highest level since May 2002 on Wednesday, reaching 5.306% in intraday trading as persistent inflation concerns continued to weigh on government bond markets.
What this adds
The alignment of these EMAs above spot suggests upside remains capped, while the Relative Strength Index (14) at 36.16 hovers just above oversold territory, hinting at persistent but not extreme selling pressure.
The widely expected move fails to prop up the yen, which initially falls.
Two BOJ board members dissented from the rate increase, adding to investor expectations that the central bank may face a difficult path as it balances persistent inflation against the risk of renewed currency weakness.
Background
Federal Reserve policymakers see more work ahead to quell inflation, according to minutes from their September meeting.
What's confirmed
- "Underlying inflation has been approaching 2%" as companies continue to pass on the cost of higher wages and inflation expectations keep heightening, it said.
- In agreeing to join Japan's yen-buying intervention, Bessent also urged Prime Minister Sanae Takaichi's administration to avoid ramping up fiscal stimulus - a move running counter to the BOJ's efforts to rein in inflation, sources have told Reuters.
- The move follows rate hikes by its European and US peers, highlighting central banks' focus on global inflation risks caused by the Iran war-induced energy cost spike, expansionary fiscal policies and surging demand for AI investment.
- In a statement announcing the decision, the BOJ said while economic and price developments are moving in line with its baseline forecast, there was a risk of underlying inflation deviating from its 2% target.
- "Wholesale inflation remains elevated and price pressures from business-to-business trading has started to spill over into consumer prices," the BOJ said.
- Core consumer inflation held steady near the BOJ's 2% target in August, data showed on Friday, as companies continued to pass on rising costs for a wide range of food and grocery items.
- The BOJ exited a decade-long stimulus in 2024 and has raised rates several times, including in June, at a pace of roughly twice a year on the view Japan was making progress in durably achieving its 2% inflation target.
What's still developing
- The alignment of these EMAs above spot suggests upside remains capped, while the Relative Strength Index (14) at 36.16 hovers just above oversold territory, hinting at persistent but not extreme selling pressure. (The technical analysis of this story was written with the help of an AI tool.
- When inflation falls too low it is a sign economic growth is slowing.
- The most recent data composite from S&P Global showed US business activity jumped at the fastest pace since 2021, pointing to acceleration in demand-driven inflation.
- “This summer’s inflation readings do not tell me that underlying trends have meaningfully improved.” While Warsh abstained from predicting future rate decisions for the FOMC’s quarterly projections, 12 of 18 FOMC officials said the panel would hike rates once more this year — with a quartet forecasting two quarter-point increases.
- His comments highlight the challenge of bringing inflation back to the Fed’s 2% target.
- Yet, the dollar’s inability to capitalize fully on this data suggests investors are weighing the broader inflation trajectory and Fed communication carefully.
- The Fed's preferred inflation gauge, the personal consumption expenditures (PCE) index, was up 3.7% on an annual basis in July while core PCE, which excludes volatile food and energy prices, was up 3.3%.
- Two BOJ board members dissented from the rate increase, adding to investor expectations that the central bank may face a difficult path as it balances persistent inflation against the risk of renewed currency weakness.
- This seemingly small move carries outsized implications for travelers budgeting trips, importers managing costs, and investors positioning ahead of key central bank decisions.
- Macron urges EU trade defenses as China 'floods' European market French President Emmanuel Macron called Wednesday for stronger European trade defenses and investment, warning that China has "completely flooded" the continent's market while the EU runs a "€1 billion daily" trade deficit with Beijing.