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RBA officials delivered a broadly hawkish message ahead of the September 29 policy meeting, warning that inflation risks identified last month were beginning to crystallize. In her opening statement to the House of Representatives Standing Committee on Economics in Canberra on Friday, Governor Michele Bullock said “inflation is too high” and that “some of these upside risks to inflation appear to be materialising.” After raising the cash rate by 75bp to 4.35% this year, the Board’s key question is now whether that tightening will be sufficient to return inflation to target within a reasonable timeframe.

The concern extends beyond the direct effect of higher oil prices. Bullock said the prolonged Middle East conflict, the global AI boom and extreme weather were lifting energy, agricultural and technology costs. RBA liaison indicated that firms were increasingly passing higher input costs to customers, creating a risk that the shock becomes embedded in broader price and wage decisions. She warned that persistent inflation could require a “stronger policy response.” Australia also entered the global shock with domestic capacity pressures already present. As Bullock put it, “we started with excess demand,” leaving the economy more exposed to a second inflationary impulse.

There are signs that higher rates are restraining activity. Household spending growth is moderating, housing prices and new lending have declined, and the full effect of recent tightening has yet to reach the economy. But those counterweights have not yet produced substantial spare capacity. Labour-market conditions remain close to and slightly tighter than full employment, while Bullock described forward-looking employment indicators as “stable-ish.” Business investment has also accelerated, led by data centres and renewable energy, while weak productivity limits how quickly demand can grow without generating further inflation.

The officials’ language suggested that the RBA is prepared to tighten again if incoming evidence does not show sufficient disinflation. Bullock emphasized that “interest rate rises do work,” while RBA Deputy Governor Andrew Hauser said the Bank would “persevere.” Hauser also described the exchange rate as the “biggest single channel” through which higher rates affect the economy, since a stronger Australian Dollar lowers import costs. Bullock stopped short of pre-committing to a September hike, but the collective message was difficult to interpret as neutral: the RBA sees inflation risks intensifying before domestic capacity pressure has been fully removed.

Key takeaways

• RBA officials delivered a broadly hawkish message ahead of the September 29 policy meeting, questioning whether this year’s 75bp of tightening will be sufficient.
• RBA Governor Michele Bullock said inflation was “too high” and that previously identified upside risks were beginning to materialize.
• Australia entered the global inflation shock with excess demand and lingering capacity pressure, making it more vulnerable to renewed increases in energy and input costs.
• The Middle East conflict, AI investment boom and extreme weather are adding pressure to energy, agricultural and technology-related prices.
• RBA liaison indicates that businesses are already passing higher input costs to consumers. Bullock warned that persistent pass-through could require a stronger policy response.
• Household spending and housing have weakened, but labour-market conditions remain slightly tighter than full employment. Forward-looking employment indicators do not point to an imminent deterioration.
• Strong data-centre and renewable-energy investment is supporting demand, while weak productivity limits how quickly the economy can grow without generating inflation.
• RBA Deputy Governor Andrew Hauser said the Bank would “persevere” and identified the exchange rate as the largest single channel of monetary-policy transmission.
• Bullock did not pre-commit to another hike, but the discussion has shifted toward whether additional tightening is needed to prevent the global shock from becoming embedded domestically.

Full openning statement of RBA's Bullock here.

The Bank of Japan raised its policy rate by 25bp from 1.00% to 1.25%, its highest level since 1995, but the 7–2 vote exposed a widening political and policy divide over further normalization. The increase, effective September 24, was widely anticipated. Yen weakened after the announcement while the 10-year Japanese government bond yield fell, suggesting that markets focused less on the delivered hike than on the two dovish dissents and the uncertain pace of subsequent tightening.

The BoJ nevertheless retained a clear tightening bias. It said underlying CPI inflation was approaching 2%, financial conditions were still accommodative and the policy rate would continue to rise if economic activity and prices developed in line with its outlook. Core inflation is projected to accelerate clearly above 2% from the second half of fiscal 2026 as higher crude oil prices, Yen depreciation and AI-related demand lift energy, goods and semiconductor costs. The Bank also warned that underlying inflation could overshoot its target as firms become more willing to raise wages and prices and longer-term inflation expectations increase.

The two dissenters, Policy Board members Toichiro Asada and Ayano Sato, preferred to keep the rate at 1.00%. Asada pointed to core inflation below 2% and questioned whether the economy was strong enough to absorb another increase. Sato argued that economic and price conditions had not accelerated sufficiently to justify tightening. Both were appointed by Prime Minister Sanae Takaichi’s administration, and their positions broadly reflected the government’s preference for accommodative monetary policy alongside fiscal support. They remain independent board members, but the dissent indicates that future hikes could become more politically and institutionally contested.

The split was not uniformly dovish, however. Policy Board members Hajime Takata and Naoki Tamura, who supported the hike, objected to the BoJ’s inflation description because they believed underlying inflation had already reached a level consistent with the 2% target. The board therefore contained two members who opposed tightening and two who viewed inflation as stronger than the central assessment suggested. That leaves the BoJ on a further-hike path, but with the timing constrained by a widening internal divide—explaining why a nominally hawkish decision failed to deliver immediate support to Yen.

Key takeaways

• The BoJ raised its policy rate by 25bp from 1.00% to 1.25%, the highest level since 1995, with the new rate taking effect on September 24.
• The decision passed by a 7–2 vote, with Policy Board members Toichiro Asada and Ayano Sato preferring to keep the rate at 1.00%.
• Both dissenters were appointed by Prime Minister Sanae Takaichi’s administration. Their caution broadly aligns with the government’s preference for accommodative monetary policy, although they remain independent board members.
• The BoJ retained a clear tightening bias, stating that it would continue raising the policy rate as economic activity, inflation and financial conditions evolve.
• The Bank said underlying CPI inflation was approaching 2% and warned that stronger wage and price-setting behavior could eventually push it above the target.
• Core inflation is expected to rise clearly above 2% from the second half of fiscal 2026, driven by higher oil prices, Yen depreciation and AI-related demand.
• The board was divided in both directions. Hajime Takata and Naoki Tamura supported the hike but argued that underlying inflation had already reached a level consistent with the 2% target.
• Yen’s initial weakness reflected a hike that was already priced in, the two dovish dissents and uncertainty over the timing of the next move—not an abandonment of the BoJ’s normalization path.

Full BoJ statement and summary.

Japan’s headline CPI was unchanged at 1.9% y/y in August, while the seasonally adjusted index was flat on the month. CPI excluding fresh food slowed from 1.8% to 1.7% y/y, undershooting the 1.8% consensus and remaining below 2% for an eighth consecutive month. By contrast, CPI excluding fresh food and energy held at 1.9% y/y and rose 0.3% m/m, pointing to steadier underlying pressure.

Energy accounted for much of the slowdown in the standard core measure. Energy inflation fell from 0.6% to -0.7%, as electricity prices declined 2.4% and gasoline prices dropped 2.6% from a year earlier. Government measures affecting gasoline and household energy reduced headline inflation by an estimated 0.62 percentage points. Food inflation also moderated: prices excluding fresh food slowed from 3.0% to 2.7%, although snacks, prepared meals, beverages and dining-out costs continued to rise.

The release therefore showed selective disinflation rather than a broad retreat in prices. Government-supported energy relief and slower food inflation pulled the core rate lower, while the measure excluding both fresh food and energy stayed close to 2% and recorded a solid monthly increase. With recent global oil prices considerably higher than those reflected in the August data, part of the current energy drag could also prove temporary.

Data summary

Key takeaways

• Japan’s standard core CPI slowed from 1.8% to 1.7%, missing the 1.8% consensus and remaining below 2% for an eighth consecutive month.
• Headline inflation held at 1.9%, while the measure excluding fresh food and energy also remained at 1.9%.
• Underlying monthly momentum was firmer than the annual readings imply: CPI excluding fresh food and energy rose a seasonally adjusted 0.3% m/m.
• Energy was the main source of disinflation. Its annual rate reversed from +0.6% to -0.7%, led by falling electricity and gasoline prices.
• Government support had a significant effect, reducing energy’s estimated contribution to overall CPI by 0.62 percentage points. The softer core rate therefore partly reflected administered relief rather than broad-based disinflation.
• Food pressure moderated but remained evident. Inflation in food excluding fresh items eased from 3.0% to 2.7%, while fresh-food inflation slowed from 7.0% to 6.0%.
• The figures suggest selective disinflation rather than a decisive retreat in underlying prices. The recent increase in global energy costs could also reverse some of August’s energy relief in coming months.