BOJ’s Ueda Says Upside Inflation Risks Need Closer Watch, Strengthening September Rate-Hike Bets

Bank of Japan Governor Kazuo Ueda said upside inflation risks need closer attention than before, reinforcing expectations that the central bank will raise its policy rate this month.

Bloomberg reported on September 1 that Ueda, speaking to reporters after the Group of 20 finance ministers and central bank governors’ meeting in Asheville, North Carolina, said the BOJ would fully discuss monetary policy at its September 17-18 meeting.

“As underlying inflation moves closer to 2%, we believe that, from a risk-management perspective, conducting monetary policy requires paying more attention to upside risks than before,” Ueda said.

Markets interpreted the remarks as support for the possibility of another BOJ rate increase on September 18. Overnight index swaps have effectively fully priced in a September hike, and Ueda did not strongly push back against those expectations.

Ueda also said recent economic data have not materially deviated from the central bank’s earlier outlook. “Economic indicators are broadly in line with the projections we discussed in the July outlook report and at the press conference at that time,” he said. There has been no major change in the BOJ’s basic thinking on future monetary policy operations, he added. He also said the underlying inflation trend is now very close to the BOJ’s 2% target.

The comments came as U.S. Treasury Secretary Scott Bessent repeatedly stressed the need for an appropriate monetary policy response from the BOJ. Bessent had earlier met with Ueda and mentioned the yen’s undervaluation and Japan’s inflation pressures, while expressing strong support for Japan’s market and currency-policy measures.

The yen has surrendered much of its gains since the joint U.S.-Japan foreign-exchange intervention on July 31. In Tokyo trading on September 1, the dollar-yen rate traded at about 160.30 yen per dollar.

Ueda and Japanese Finance Minister Satsuki Katayama also tried to soothe markets over a sharp rise in Japanese government bond yields. Japan’s 10-year government bond yield rose to 3% the previous day, the highest level in 30 years. Ueda said the increase reflected global rate moves, while Katayama said no concerns were raised at the G20 meeting about Japan’s fiscal condition.