BoJ Chief Signals Chance of September Rate Hike as Inflation Risks Rise

• Bank of Japan (BoJ) Governor Kazuo Ueda indicated that policymakers would debate raising interest rates, including at their September meeting, with a focus on whether inflationary risks are increasing, as underlying inflation remains close to the BoJ’s 2.0% target. His remarks signalled a strong chance of a rate hike this month, with markets expecting a 25-basis-point increase to 1.25%, following the increase to 1.00% in June 2026.
• Governor Ueda reiterated that the BoJ intends to continue raising interest rates while financial conditions remain accommodative. However, after five previous rate hikes, he noted that policymakers must carefully assess their cumulative impact on the economy before tightening further.
• While the Governor refrained from committing to a September hike, he indicated that policymakers would assess whether the BoJ’s economic outlook is materialising and whether upside price risks are increasing, both prerequisites for further rate increases.
• Expectations for a September hike were further bolstered after US Treasury Secretary Scott Bessent called for “decisive” monetary steps to combat the weak yen during a meeting with Ueda. The Japanese yen also appreciated sharply against the US dollar on September 2, after previously giving up around half of the gains made following the rare joint US-Japan intervention at the end of July.
• The case for a September rate hike has strengthened as the BoJ places greater emphasis on upside inflation risks. Hawkish BoJ board member Hajime Takata also called for the central bank to conduct rate hikes “nimbly” to counter intensifying inflationary pressures, rather than adhering to the roughly semi-annual pace anticipated by markets.

(Source: Reuters)