BoJ Governor Kazuo Ueda reinforced expectations for further tightening on Tuesday after attending G20 finance leaders’ gathering, saying central bank “will continue to raise interest rates” while financial conditions remain accommodative and signaling September meeting will focus closely on upside inflation risks. Ueda said underlying inflation is “quite close” to BoJ’s 2% target and that policymakers will “debate these factors thoroughly, including at our next policy meeting.” At same time, he stressed need to assess cumulative impact of previous hikes and said data since July were moving roughly in line with BoJ’s baseline, preserving some flexibility around pace.
Pressure for tighter policy is also coming unusually directly from Washington. In a Sunday meeting with Ueda at G20 finance ministers’ and central bank governors’ meeting, US Treasury Secretary Scott Bessent expressed strong support for Japan’s “decisive market and monetary steps” to address substantial Yen undervaluation, according to a Treasury statement released Tuesday. Treasury said Bessent also emphasized need for sound policy to “anchor inflation expectations and avoid excess exchange rate volatility” and linked Yen weakness to domestic inflation, reinforcing argument that further BoJ normalization could help address both price pressures and currency weakness.
With markets now near fully pricing a hike at September 17–18 meeting, focus is shifting from whether BoJ moves to how quickly tightening continues afterward. A September increase would follow June move to 1%, but guidance suggesting hikes could come more frequently than twice-yearly pace seen since 2024 would be more consequential for Yen and carry trades. Conversely, if Ueda emphasizes cumulative tightening and gradualism after hiking, market impact could be more limited because much of September move is already discounted.
Key Takeaways
- BoJ Governor Kazuo Ueda said central bank “will continue to raise interest rates” while financial conditions remain accommodative.
- Ueda said underlying inflation is “quite close” to 2% and confirmed September meeting will examine whether upside inflation risks are increasing.
- He also stressed need to assess cumulative impact of past hikes, keeping some flexibility around pace of tightening.
- US Treasury Secretary Scott Bessent backed Japan’s “decisive market and monetary steps” to address Yen undervaluation and linked Yen weakness to domestic inflation.
- With September 17–18 hike now near fully priced, market focus is shifting toward whether BoJ signals a faster tightening pace beyond September.
- A move toward more frequent hikes would be more consequential for Yen and carry trades than September hike itself.
