Bank of Japan governor Ueda hints at September rate hike as bets on move mount

Bank of Japan Governor Kazuo Ueda said the bank’s board would decide on policy with upside price risks in mind, hinting that a rate hike is likely when authorities convene for a board meeting later this month.

The central bank will have a thorough debate on policy when it gathers on Sept. 17-18, as it does at every meeting, Ueda told reporters after a meeting of Group of 20 finance ministers and central bankers in Asheville, North Carolina. Ueda appeared at a joint press briefing with Finance Minister Satsuki Katayama.

“From the perspective of conducting policy with a risk-management approach as the underlying inflation rate approaches 2%, we have come to believe that we need to pay greater attention than before to upside risks in our policy conduct,” Ueda said.

Ueda’s comments are likely to reinforce speculation that the BOJ will raise its benchmark rate on Sept. 18, with expectations fueled by a slew of comments by US Treasury Secretary Scott Bessent hinting at the need for action.

With overnight index swaps implying a September hike is fully priced in, the governor avoided pushing back against those expectations. The governor has emphasised careful communication around policy decisions since drawing criticism over a July 2024 rate hike that caught some traders off guard and contributed to global market volatility.

Ueda declined to comment on the market’s positioning, but he said economic data have been in line with the central bank’s view, suggesting the BOJ is on track for further rate increases. He also said the price trend is very close to the BOJ’s 2% target.

“I think the economic data have been broadly in line with the economic outlook presented in the July Outlook Report and with the picture I described at the press conference,” Ueda said. “As for the basic thinking on the conduct of monetary policy going forward that I explained at the time, there has been no major change.”

Ueda, making his last scheduled public appearance before the next decision, spoke after meeting with Bessent earlier in his trip to the US. The Treasury secretary this week stepped up his calls for appropriate BOJ policy action.

In their meeting on Sunday, the secretary emphasised the importance of sound monetary-policy formulation and communication to anchor inflation expectations and avoid excessive exchange-rate volatility, according to a Treasury Department readout. Ueda declined to comment on details of their discussions.

The yen was trading around 160.37 per dollar Wednesday morning in Tokyo, having lost most of the gains it made after a historic coordinated intervention by Japan and the US to prop it up on July 31.

Ueda and Katayama both sought to calm the market after Japan’s benchmark 10-year bond yield hit 3%, the highest level in three decades, on Tuesday. Katayama said no one at the G-20 meeting expressed concerns over Japan’s finances, while Ueda characterised the rise in bond yields as tracking global trends.

The rise in benchmark yields also came as it became clear that Japan’s ministries would request a record amount of spending for next fiscal year, putting Prime Minister Sanae Takaichi’s fiscal ambitions in sharper focus. Much of the increase in requested spending reflects an accounting change, with the premier seeking to end the long-standing practice of compiling extra budgets in addition to the annual spending plan.

Recent economic data have supported the case for a rate hike. A key price gauge has started to pick up and is forecast to rise back to 3% toward an early next year, according to economists surveyed by Bloomberg.

Record corporate profits in the latest quarter also ease concern that higher oil and raw-material costs will squeeze companies’ ability to keep raising wages, an important element of the BOJ’s case for sustainable inflation.

A move in September would represent the quickest follow-up hike of Ueda’s tenure, breaking from the roughly six-month intervals that have defined the normalisation cycle to date.

Also Read: European leaders and NATO rally behind Germany after confirmation of Russian attack on Leipzig airport