BOJ Governor Signals Possible September Rate Hike as Inflation Risks Mount

Bank of Japan (BOJ) Governor Kazuo Ueda has indicated that the central bank could raise interest rates as early as September, with the board set to debate whether inflationary risks are intensifying. Speaking after a G20 finance leaders' meeting in Asheville, North Carolina, Ueda said the BOJ would carefully assess the cumulative impact of its five previous rate hikes while remaining vigilant to upside price risks.

"We hope to continue raising interest rates as financial conditions remain accommodative," Ueda said, adding that the BOJ would set policy with a focus on inflation risks. He noted that recent economic and price data were broadly in line with the BOJ's July projections, but that underlying inflation was close to the 2% target, warranting close attention to risks.

Ueda identified the Middle East conflict, robust AI-related demand, and the weak yen as key upside risks to prices. He said the board would thoroughly debate these factors at its next policy meeting on September 17-18.

The remarks come after the U.S. Treasury Department said Treasury Secretary Scott Bessent met Ueda and called for "decisive" monetary steps to address the weak yen. Ueda confirmed the meeting but declined to discuss details.

In a separate speech, hawkish BOJ board member Hajime Takata called for "nimble" rate hikes in response to inflationary pressures, rather than sticking to a fixed schedule. His comments helped push the two-year Japanese government bond yield to 1.830%, the highest since 1995.

Markets are now nearly fully pricing in a rate hike this month. The BOJ raised rates to 1% in June, a 31-year high, and kept them steady in July while signalling a strong chance of a near-term increase.