The Bank of Japan is facing growing expectations for a September interest-rate increase after Takuji Aida, an economic adviser to Prime Minister Sanae Takaichi and previously a vocal opponent of rapid monetary tightening, moved his forecast forward. The shift comes as Japan confronts persistent yen weakness, elevated inflation risks and rising government bond yields, placing monetary policy at the center of global foreign-exchange and fixed-income markets.

Takaichi Adviser Brings Forward Rate-Hike Forecast

Aida, chief Japan economist at Crédit Agricole and a member of the government’s key economic panel, now expects the BOJ to raise interest rates in September. He had previously forecast the next increase for January 2027 but said the September meeting represents a narrow opportunity for action before an extraordinary session of parliament begins in early October.

Aida expects the central bank could follow a September increase with another hike by January 2027. After that, he anticipates the BOJ returning to a slower pace of roughly one increase every six months. His forecast is notable because Aida is considered a reflationist and has historically argued against premature rate increases that could weigh on Japan’s economic recovery.

Markets Are Pricing a 25-Basis-Point Increase

Financial markets have moved toward expecting a September policy adjustment. Investors have nearly fully priced a 25-basis-point increase in the BOJ’s policy rate to 1.25% at the September 17–18 meeting.

The yen has already responded to the changing expectations, gaining as traders assess the possibility of faster monetary normalization. A higher Japanese policy rate could narrow the interest-rate gap with the United States and potentially reduce pressure on the yen, although the currency remains sensitive to U.S. yields, energy prices and global risk sentiment.

BOJ Governor Kazuo Ueda has also indicated that policymakers will consider a September increase, with particular attention to whether inflation risks are intensifying. U.S. Treasury Secretary Scott Bessent has separately advocated more decisive monetary action from Japan to address yen weakness, adding an international dimension to the policy debate.

Rate Hikes Create a Delicate Policy Balance

The potential September increase comes with significant economic and fiscal considerations. Higher interest rates could help contain inflation and strengthen the yen, reducing the cost of imported goods and energy. At the same time, faster tightening could increase borrowing costs for households and businesses and place additional pressure on Japan’s government finances as debt-servicing expenses rise.

The policy challenge is particularly important for Takaichi’s administration, which has pursued expansionary fiscal policies while seeking to support household purchasing power. Parliament is expected to consider legislation that would suspend an 8% levy on food items for two years, potentially adding to the interaction between fiscal stimulus and monetary tightening.

Markets will now focus on the BOJ’s September 17–18 meeting, inflation data, yen movements and signals from Governor Ueda and other policymakers. A rate increase would strengthen expectations for further normalization, but the pace of subsequent hikes will determine whether Japan can balance currency stability and inflation control without placing excessive pressure on economic growth or already elevated government financing costs.