BOJ chief signals chance of September rate hike, debate on price risks

The Bank of Japan (BOJ) chief, Kazuo Ueda, hinted at the possibility of a September interest rate hike during a meeting on September 1. Ueda emphasized the need to consider inflationary risks and the possibility of upside price risks when deciding whether to increase interest rates. His remarks followed a statement from the US Treasury Department, which reported that Treasury Secretary Scott Bessent met Ueda and urged decisive monetary actions to counteract the weakening yen, bolstering the argument for a Japanese interest rate hike in September.

While Ueda did not definitively commit to a September hike, he stated that the board would discuss the likelihood of the BOJ's economic scenario unfolding and the potential increase in upside price risks at their upcoming policy meeting. Ueda reiterated the BOJ's commitment to raising interest rates as long as financial conditions remain accommodative and stressed the importance of carefully assessing the cumulative impact of past rate hikes on the economy.

Ueda's comments at a news conference following the G-20 finance leaders' gathering in Asheville, North Carolina, came after a hawkish speech by BOJ board member Hajime Takata, who argued for more nimble rate hikes in response to inflationary pressures rather than at a fixed semi-annual pace. Takata's remarks contributed to a rise in yields on Japanese government bonds, particularly the two-year JGB, which hit a high of 1.830% per cent on September 2.

Ueda confirmed his meeting with Bessent on August 30 but refrained from discussing the specifics of their conversation. The BOJ's focus on inflation and its 2% target remained unchanged, but Ueda emphasized that the central bank must closely monitor inflationary risks, particularly given the economy's alignment with its projections and external factors such as the Middle East conflict and a weak yen.