Report: Bank of Japan may raise interest rates as early as September, with the pace of subsequent hikes likely to accelerate

The Bank of Japan is facing the most urgent pressure to raise interest rates since exiting its ultra-loose policy in 2024.

According to a Reuters report on August 14, three sources familiar with internal BOJ discussions revealed that the Bank could raise rates as early as September and is considering accelerating the pace of tightening beyond the current twice-a-year rhythm.

One insider stated bluntly: “An early rate hike is now on the table.” Another said: “The Bank of Japan may also speed up its rate hike pace.”

This signal means the September 17-18 policy meeting could become a key juncture. The market is already pricing the probability of a rate hike in September at nearly 80%.

From “Twice a Year” to “Once a Quarter”

Since exiting a decade-long ultra-loose stimulus policy in 2024, the Bank of Japan has raised interest rates about twice a year. In June, the Bank lifted rates to 1%, a 31-year high.

If a September hike goes as expected, analysts cited by Reuters believe there will be room for another hike in December. This would bring the total hikes this year to three, strengthening market expectations of a “quarterly rate hike.”

Last month’s joint intervention by Japan and the US on the yen, as well as pressure from US Treasury Secretary Janet Yellen, have focused markets even more closely on how the Bank of Japan will respond to the yen's persistent weakness. Raising rates is itself a policy tool to support the yen—higher rates typically attract capital inflows and bolster the currency.

Inflation Pressure Arriving from Multiple Directions

The BOJ's underlying logic for accelerating its tightening is that inflation risks are heating up from multiple dimensions at once.

Yen depreciation. Last month, the yen touched a 40-year low, and despite the rare joint intervention by Japan and the US, the downward trend has not reversed. A weak yen directly increases import costs and feeds into a broader rise in consumer goods prices.

High wholesale prices. Japan’s annual wholesale inflation in July remained at a three-year high, indicating that cost pressures on businesses have not been fully passed on to consumers—once companies start to transfer costs, consumer prices will rise further.

Rising inflation expectations. Surveys show that inflation expectations among households, businesses, and economists are all at or above 2%. This is one of the central bank’s top warning signals—if expectations become unanchored, keeping inflation under control becomes much harder.

External shocks overlapping. Ongoing Middle East tensions continue to unsettle energy and commodity prices, while strong global AI demand is elevating demand for related equipment and energy. Both contribute additional imported inflation pressure.

Inside the Central Bank: “We Can't Wait Too Long”

The Bank of Japan kept rates unchanged in July, but sent the strongest signal yet of an early hike—warning that inflation pressures continue to build and may push core inflation above its 2% target.

A summary of the July meeting showed that several policy board members explicitly called for a faster pace of rate hikes, to avoid “falling behind the curve” in tackling inflation—a common expression in central banking meaning that if action is delayed, much more drastic tightening might be needed later to catch up.

Governor Kazuo Ueda said at the July post-meeting press conference that he would fully consider the board’s rising caution over inflation risks when leading future meetings, and noted that if financial conditions are judged excessively loose, the Bank may accelerate its rate hikes.

A third source put it more directly: “Given rising inflation risks, the Bank of Japan may not want to wait too long to raise rates.”