September Rate Hike Expectations Continue to Rise! Bank of Japan’s Strongest Hawk Advocates Flexible Rate Hikes to Curb Upside Risks in Prices

According to Jinse Finance APP, Hajime Takata, one of the most hawkish members of the Bank of Japan's Policy Committee, once again called for flexible interest rate hikes to curb the upward risks of prices deviating from the target. This statement further reinforces market expectations for the Bank of Japan's upcoming policy adjustments.

In the speech transcript Takata delivered to local business leaders in Sapporo, Hokkaido on Wednesday, he said: "I believe that while the central bank is closely monitoring overseas economic developments, it also needs to assess the degree of monetary ease in the domestic financial environment and proceed with a flexible interest rate hike process accordingly."

At the policy meeting held from July 30 to 31, Takata proposed raising the policy rate by 25 basis points to 1.25%, becoming the only committee member who opposed maintaining rates at around 1%. Takata stated: "Based on the fact that Japan's economy has entered a new phase in 2026, I put forward the rate hike suggestion at the July meeting."

His remarks come as market expectations for a Bank of Japan rate hike at the conclusion of the next policy meeting on September 18 continue to grow. Despite joint intervention between Japan and the United States in late July, the yen remains weak, and increased import costs are contributing to inflationary pressure. U.S. Treasury Secretary Scott Besant said the Bank of Japan needs to further raise rates, while Japanese Finance Minister Katayama Satsuki played down this viewpoint.

As of press time, the yen-dollar exchange rate was hovering around 160.25.

Previously, Bank of Japan Governor Kazuo Ueda stated, following the G20 Finance Ministers and Central Bank Governors Meeting in Asheville, North Carolina, USA, that the committee would consider upside risks to prices in its decision-making, hinting that a rate hike is possible at a meeting later this month.

The Bank of Japan's policy moves also influence the bond market. This week, the yield on Japan's 10-year government bonds broke through 3% for the first time in 30 years, in part due to market concerns about fiscal discipline amid Prime Minister Sanae Takashi’s expansionary fiscal policies.

As the Bank of Japan gradually scales back government bond purchases as part of its exit from aggressive monetary easing, yields on Japanese government bonds continue to rise. However, Takata pointed out: "There is no doubt that reducing bond purchases is not due to fiscal considerations." He also said: "From the perspective of overall market function, I believe it is also necessary to ensure market stability and avoid excessive volatility."

Takata further noted that Japan's real interest rates have been rising recently but remain lower than those in other countries, so the central bank still has room to move policy rates toward neutral levels. He stated that with Japan’s economy entering a new phase in 2026, "the foundation lies in breaking the tradition that 'prices and wages in Japan are hard to rise' and in changes to the overseas environment, and this new phase itself is accompanied by upward risks to prices."

Takata believes that given the 2% price stability target of the Bank of Japan has been largely achieved, inflationary pressure triggered by the situation in the Middle East could push prices above the target level. He finally emphasized: "2026 marks a shift in the policy paradigm, and rate hikes will not follow a fixed pace, but be flexibly adjusted according to changes in domestic prices and the economic environment, with a particular need to reflect overseas trends and make decisions that are data-driven."