Japanese media: The Bank of Japan plans to raise its policy interest rate by 25 basis points next week, potentially accelerating the pace of hikes to 'once per quarter'.

The Bank of Japan (BOJ) is preparing to raise its policy interest rate again at this month’s monetary policy meeting—marking a notably accelerated pace and signaling an increasingly clear policy shift. According to Kyodo News on September 8, the BOJ plans to raise its policy rate from the current level of approximately 1.0% to about 1.25% at its monetary policy decision meeting scheduled for September 17–18. If implemented, this would be the highest level in roughly 31 years—and the second rate hike since the June meeting, marking a three-month interval between hikes. On the same day, Reuters cited informed sources stating that the BOJ favors a conventional 25-basis-point increase and is considering accelerating the pace of hikes to roughly once per quarter. The core driver behind rising expectations for this hike is the unexpectedly strong upward pressure on inflation caused by yen depreciation and surging oil prices—as well as external pressure from the United States. U.S. Treasury Secretary Scott Bessent publicly stated on August 31, “I am confident that the Japanese government and the Bank of Japan will take measures conducive to yen appreciation,” a remark widely interpreted by markets as exerting pressure on the BOJ to raise rates. 25 basis points is the consensus; 50 basis points is ruled out Although market consensus has largely formed around a September rate hike, debate over the magnitude remains central. According to Reuters’ informed sources, the BOJ shows virtually no inclination toward an unconventional 50-basis-point hike this month, preferring instead to stick with the conventional 25-basis-point increment. The sources explained that opting for 25 basis points aims to avoid disrupting markets while allowing time to assess the impact of higher rates on corporate and household activity. Analysts also point out that aggressive tightening could backfire: Nobuyasu Atago, Chief Economist at Rakuten Securities Economic Research Institute and former BOJ official, noted, “A 50-basis-point hike could be perceived as a sign of panic at the BOJ—shifting market focus instead to the risk that the BOJ is falling behind the curve in tackling inflation.” BOJ Governor Kazuo Ueda stated last week that economic and price developments broadly align with expectations—suggesting inflation risks have not yet intensified to a degree warranting unconventional hikes. He also emphasized, “We aim to continue raising rates while financial conditions remain accommodative; however, having already raised rates five times cumulatively, we must carefully assess their cumulative impact on the economy.” Accelerating the pace of hikes reflects mounting multifaceted pressures

Goldman Sachs: Voices within the Bank of Japan are already calling for accelerated rate hikes—the key question is whether inflation will exceed 2%.

GS: Voices within the Bank of Japan are already calling for accelerated rate hikes—the key question is whether inflation will exceed 2% On the surface, the minutes of the BOJ’s June monetary policy meeting were routine disclosures. Yet Goldman Sachs’ Japan economics team detected a signal worth close reading in its latest research report: two members explicitly advocated accelerating rate hikes, arguing that the policy rate should move swiftly toward the neutral rate. This runs counter to the prevailing market narrative. Global investors remain focused on when—and at what pace—the BOJ will scale back its Japanese Government Bond (JGB) purchases, and whether the yen will face further downward pressure. But GS stresses that what truly warrants tracking is the “risk assessment of underlying inflation exceeding 2%”—a judgment that will determine whether this minority view favoring faster hikes spreads to become a central bank consensus. In other words, the timing of the BOJ’s next rate hike may arrive earlier—or later—than market expectations. And the ultimate arbiter lies in inflation data. 1. The June meeting was not unanimously hawkish—but hawkish voices are growing clearer The BOJ’s June policy decision itself was unsurprising: raising the policy rate to 1% and announcing it would halt reductions in JGB purchases starting next fiscal year. Markets had fully priced in these moves. What truly merits attention is the divergence of views revealed in the meeting minutes. One member explicitly opposed the rate hike, arguing that raising the policy rate would dampen corporate fixed investment—and thereby suppress inflation, output, and employment simultaneously. This stance reflects concerns over the sustainability of the economic recovery. Yet more members supported the hike, citing two reasons: weakening downside risks to the economy, and the risk that underlying CPI might overshoot the 2% target. GS interprets this as follows: among the rationales for hiking, “the risk of inflation overshooting 2%” has supplanted “the risk of overheating” as the BOJ’s central decision-making variable. This signals a shift in the BOJ’s rate-hiking logic—from “preemptive” to “reactive.” KC Commentary: This is not the first time the BOJ has discussed rate hikes—but it is the first time the minutes have expressed systematic concern over “underlying inflation possibly exceeding 2%.” For investors, this means the BOJ’s rate decisions will increasingly hinge on actual inflation data—not GDP growth. Those tracking Japan’s core CPI components will best anticipate the timing of the next hike. 2. Two members call for “accelerated hikes”—what is their logic? This is the most striking part of the entire set of minutes. Two members voiced explicit proposals: one argued that “it is necessary to move the policy rate toward the neutral rate as soon as possible”; the other went further, specifying a figure—“the neutral rate stands at approximately 2%”—and added, “considering rate hikes at intervals of several months is reasonable.” Taken together, these statements imply that, from the current 1% policy rate, these two members envision roughly 100 basis points of additional tightening. Of course, this remains the personal view of just two members. GS explicitly notes in its report that such opinions are still in the minority. But the critical question is: will this minority expand? GS’s assessment: That depends on future assessments of the “risk of underlying inflation exceeding 2%.” If core inflation data persistently exceeds expectations over the coming months, more members may shift toward supporting accelerated hikes.

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Minutes from the Bank of Japan's June meeting show some board members calling for further rate hikes to address inflation driven by the Iran-war-induced energy shock.

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