Global Market | BOJ may speed up rate hikes amid inflation, weak yen risks: Masu

The Bank of Japan (BOJ) may eventually have to raise interest rates rapidly if inflation accelerates, given the country’s still-loose financial conditions, board member Kazuyuki Masu said on Thursday, reinforcing expectations of a rate hike at next week’s policy meeting, Reuters reported.

In a closely watched speech ahead of the BOJ’s September 16-17 meeting, Masu warned that broadening price pressures have pushed underlying inflation very close to the central bank’s 2% target. He also said the BOJ should move real interest rates out of negative territory as soon as possible, Reuters said in the report.

Read more: US stocks today: US stocks retreat as oil crosses $100, yields rise ahead of inflation data


Masu’s comments add to a series of increasingly hawkish signals from BOJ policymakers, strengthening market expectations that the central bank will raise its policy rate this month.

According to Reuters, a recent surge in producer prices warrants close attention as companies appear more willing to pass higher costs on to consumers. The impact of the Middle East conflict and a weaker yen could further increase inflationary pressures.

Read more: Global Market Today: Asian stocks fall as oil stokes inflation fears

Higher fuel and chemical prices resulting from the conflict involving Iran could raise transportation costs. Combined with persistent food price increases, this could make inflationary pressures more durable, Masu said.

Masu did not provide specific guidance on the timing or pace of future rate increases. He said the BOJ would need to assess whether the economy was moving in line with its baseline outlook, while also monitoring risks from oil prices, strong artificial-intelligence-related demand and movements in the yen.

Markets see September hike as nearly certain

The yen strengthened against the dollar following Masu’s remarks. Markets view him as a neutral-to-somewhat-hawkish member of the BOJ’s nine-member policy board.

Reuters reported that pressure for a September rate increase has intensified following hawkish comments from BOJ officials and pressure from U.S. Treasury Secretary Scott Bessent.

A Reuters poll of economists expects the BOJ to raise its policy rate to 1.25% next week, followed by another increase to 1.75% in the second quarter of 2027. Persistent inflationary pressures and yen weakness have brought forward expectations for further tightening.

With a September hike largely priced in, investors are now looking for clues on whether the BOJ could accelerate the pace of rate increases from its recent pattern of roughly two hikes a year.

Inflation and corporate investment in focus

Masu said recent rate increases had not appeared to significantly weaken companies’ appetite for borrowing. He also flagged the possibility of overheating in corporate investment, suggesting that financial conditions remain supportive despite the BOJ’s policy normalisation.

The central bank raised its policy rate to 1% in June, the highest level in 31 years, as it judged Japan to be nearing a sustainable achievement of its 2% inflation target. The BOJ left rates unchanged in July but signalled that a near-term increase remained possible amid rising price pressures linked to the Middle East conflict and the weak yen.

Wholesale inflation remained elevated in July at its highest level in three years, raising concerns that higher input costs could increasingly feed into consumer prices. The BOJ is due to release August wholesale inflation data on Friday.

Sources told Reuters that the BOJ is expected to raise rates as soon as September and is considering a more aggressive pace of tightening thereafter.

BOJ staff estimates put Japan’s nominal neutral interest rate — the level that neither stimulates nor restrains economic growth — in a range of 1.1% to 2.5%.