RBI to conduct Overnight Variable Rate Reverse Repo (VRRR) auction under LAF on September 08, 2026

The Bank of Japan is expected to raise interest rates in September, according to Takuji Aida, an economic adviser to Prime Minister Sanae Takaichi. Aida, a reflationist and outspoken critic of BOJ rate hikes, now forecasts the next increase to occur by early September, rather than his previous prediction of January 2027. He stated that the narrow window of opportunity for a hike before an October parliamentary session has pushed him to adjust his forecast.

The BOJ is anticipated to raise rates again by January 2027, following which Aida expects the bank to revert to increasing rates around every six months. Aida cautioned that accelerating rate hikes too early could harm the economy. This consensus among the administration and the broader consensus within the dovish Takaichi administration suggests the need for additional BOJ rate hikes to counter the yen's decline.

The market had already priced in a 25 basis point hike to 1.25% at the September meeting. BOJ Governor Kazuo Ueda suggested at the end of August that the bank would debate rate hikes, including in September, emphasizing concerns about inflationary risks. US Treasury Secretary Scott Bessent recently urged higher BOJ rates, emphasizing the need for "decisive" monetary action to curb the yen's weakness.

However, Finance Minister Satsuki Katayama reiterated that monetary policy decisions are exclusively the responsibility of the central bank. Takaichi has not commented on monetary policy recently.