Bank of Japan Governor Kazuo Ueda has signaled a possible rate hike when policymakers convene later this month, noting that officials will factor upside price risks into their decisions. Speaking to reporters after the G20 finance ministers and central bank governors meeting in Asheville, North Carolina, Ueda stated the central bank would conduct thorough policy discussions at its upcoming meeting, as it does at every session. He appeared alongside Finance Minister Sanga Katayama at the joint press conference.
"With underlying inflation approaching 2%, from the perspective of risk-managed policy implementation, we believe there is a need to pay greater attention to upside risks in policy operations than before," Ueda said. His remarks are likely to strengthen market expectations that the central bank will raise its benchmark rate on September 18. Speculation has also been fueled by a series of comments from U.S. Treasury Secretary Bessent pointing to the necessity of action from the BoJ.
Hajime Takata, the most hawkish member of the BoJ's board, reiterated this view during a speech in Sapporo, Hokkaido. Citing his July call for "successive rate hikes," Takata emphasized his belief that the economy has entered a new phase, partly due to the surge in AI demand. He stated that Japan is no longer an exception in terms of monetary policy and now needs to respond flexibly to various changes in circumstances, including the global situation.
Market participants need no further hints. Overnight index swaps show investors are fully pricing in a September rate hike from the BoJ, and Ueda did nothing to dampen those expectations. Since facing criticism for catching some traders off guard with the July 2024 rate increase, which exacerbated market volatility, the governor has emphasized cautious communication in decision-making. Ueda declined to comment on the rising market expectations for a September hike, but said economic data align with the central bank's outlook, signaling plans to proceed further with monetary policy normalization. He also pointed out that price movements are now very close to the BoJ's 2% target.
U.S. Treasury Secretary Scott Bessent intensified calls this week for the BoJ to adopt appropriate policy actions, further boosting market anticipation of imminent moves. The yen traded around 160.37 against the dollar in Tokyo on Wednesday morning, having given back most of the gains from the historic joint intervention on July 31. Both Ueda and Katayama sought to reassure markets after Japan's benchmark 10-year government bond yield rose to 3% on Tuesday, its highest level in three decades. Katayama noted that no one at the G20 raised concerns about Japan's fiscal situation, while Ueda described the rise in bond yields as following global trends.
Recent economic data support the case for a rate increase. According to economists surveyed, a key price indicator has begun to pick up and is expected to reach 3% early next year. Record corporate profits in the latest quarter have also eased concerns that rising oil and raw material costs would squeeze companies' ability to sustain wage increases, which is a crucial pillar of the BoJ's goal of achieving sustainable inflation.