The expectation for a rate hike in September continues to heat up! The strongest hawk of the Bank of Japan has stated: flexible rate hikes should be implemented to curb the risks of rising prices.

One of the most hawkish members of the Bank of Japan's Monetary Policy Committee, Hajime Takata, has once again called for a flexible interest rate hike to curb the upward risks of prices deviating from the target. This statement further strengthened market expectations for a policy adjustment by the Bank of Japan in the near term. In a speech delivered on Wednesday in Sapporo, Hokkaido to local business leaders, Takata stated, I believe that while the central bank examines overseas economic trends, it must also assess the degree of domestic financial easing and proceed with interest rate hikes flexibly based on this assessment. At the policy meeting held from July 30 to 31, Takata had proposed an increase of the policy interest rate by 25 basis points to 1.25%, becoming the only member to oppose the decision to keep the rate unchanged at around 1%. He remarked, Given that the Japanese economy is entering a new phase in 2026, I proposed the interest rate hike in the July meeting. As his remarks were made, market expectations continued to heat up around the possibility of an interest rate hike at the Bank of Japan's next policy meeting ending on September 18. Despite the joint intervention by Japan and the U.S. in late July, the yen remains weak, with rising import costs exacerbating inflationary pressures. U.S. Treasury Secretary Scott Bethencourt indicated that the Bank of Japan needs to raise interest rates further, while Japan's Finance Minister, Shunichi Suzuki, downplayed this view. As of the time of this report, the exchange rate of the yen against the dollar was hovering around 160.25. Previously, Bank of Japan Governor Kazuo Ueda stated after the G20 meeting of finance ministers and central bank governors in Asheville, North Carolina, that the committee would consider the risks of rising prices in its decision-making, hinting at the possibility of raising interest rates in the meeting later this month. The Bank of Japan's policy direction has also impacted the bond market. This week, the yield on Japan's 10-year government bonds surpassed 3%, the first time in 30 years, partly due to market concerns over the fiscal discipline of Prime Minister Kishida's expansionary fiscal policies. As the Bank of Japan gradually reduces its scale of government bond purchases as part of exiting aggressive monetary easing, the yields on Japanese government bonds continue to rise. However, Takata noted, It is undeniable that the central bank's reduction in bond purchases is not based on fiscal considerations. He also mentioned, From the perspective of the overall function of the market, I believe it is also necessary to ensure market stability and avoid excessive volatility. Takata also pointed out that Japan's real interest rates have recently been on the rise but remain below those of other countries, indicating that the central bank still has room to move the policy rate closer to the neutral rate. He stated, "The Japanese economy will enter a new phase in 2026, based on the breaking of the convention that 'prices and wages do not easily rise' in Japan, along with changes in the overseas environment. This new phase itself also comes with upward price risks." Takata believes that given that the Bank of Japan's 2% price stability target has been largely achieved, inflation pressures arising from the situation in the Middle East could push prices above the target level. He concluded, 2026 marks a shift in the policy paradigm, and interest rate hikes will not be conducted at a fixed pace but will be adjusted flexibly according to changes in domestic prices and economic conditions, especially needing to reflect overseas trends and make data-driven decisions.