BOJ rate hike odds hit 94% as Ueda vows 'proper discussion' at next meeting

Market expectations for the Bank of Japan to raise its benchmark interest rate this month have surpassed 90%, as Governor Ueda Kazuo reaffirmed his intention to continue tightening while stopping short of committing to a September move, saying the matter would be "properly discussed at the next meeting."

Think tank Totan Research calculated that financial markets were pricing in a 94% probability of a BOJ rate hike in September, as of Tuesday afternoon, according to the Nikkei and Kyodo News.

The implied probability stood at 67% on Aug. 10, climbed to 87% on Aug. 26, and has since soared to 94%.

The BOJ will hold its monetary policy meeting Sept. 17-18 to decide whether to raise the benchmark interest rate further.

The BOJ has gradually raised its policy rate since scrapping its negative interest rate policy in March 2024. At its June meeting, it raised the policy rate by 25 basis points, from 0.75% to 1.0%.

Speaking at a press conference in Asheville, North Carolina, where the G20 finance ministers and central bank governors meeting was held, Ueda left open the possibility of another rate hike on Tuesday (local time).

"Since financial conditions remain accommodative, I would like to continue raising interest rates," he said, adding that "having raised rates five times so far, we need to carefully examine how the cumulative effects are influencing the economy."

On whether rates would rise in September, he declined to give a direct answer, saying the BOJ would "properly discuss at every meeting, including the next monetary policy meeting, whether the economy and prices are moving in line with our baseline outlook and whether upside risks to inflation are increasing." He also refrained from commenting specifically on the market's near-certain pricing of a September hike.

He added that the BOJ would continue to conduct policy while monitoring the effects of rate hikes to date and taking upside inflation risks into account.

On Japan's 10-year government bond yield reaching 3% on Tuesday, Ueda said he viewed the move as driven by "inflationary pressures stemming from the Middle East, AI-related fundraising, and the rise in global interest rates."

On upside inflation risks, he said the cumulative effects of roughly five rate hikes were beginning to show, and that he would "discuss and make a judgment with committee members at the next monetary policy meeting."

The United States has also been consistently pressing Japan on rate hikes.

Ueda met with US Treasury Secretary Scott Bessent on the sidelines of the meeting, where Bessent said the Japanese yen was undervalued and expressed support for Japan's "decisive action" on the matter — effectively pushing for a rate increase.

On his talks with Bessent, Ueda said they had "a productive discussion on a wide range of topics" and declined to elaborate further. On the G20 finance ministers' meeting, he said participants "discussed the importance of appropriate communication amid a changing global economic environment."

Finance Minister Katayama Satsuki, who also attended the press conference, said she had explained to other countries that Japan's fiscal policy aimed to prioritize growth while maintaining fiscal sustainability.

On concerns that expansionary fiscal policy and rising interest rates could worsen Japan's fiscal position, she said Japan has the lowest fiscal deficit as a share of GDP among the G7 nations.