Expectations of a Bank of Japan interest-rate increase this month have strengthened after an economic adviser to Prime Minister Sanae Takaichi predicted that the central bank could raise borrowing costs at its September meeting.

Takuji Aida, a member of the government’s economic advisory panel and chief Japan economist at Credit Agricole, moved his forecast for the next rate increase forward from January 2027 to September. He said the September meeting could provide a limited opportunity for the BOJ to act before Japan’s parliament begins an extraordinary session in October.

Markets Increasingly Expect a September Move

Financial markets have already priced in a high probability of a BOJ rate increase at the central bank’s September 17–18 meeting.

Market expectations point toward a 25-basis-point increase, which would lift the policy rate from its current level of 1% to approximately 1.25%.

The BOJ currently guides its overnight interest rate at around 1%. Its official schedule confirms that the next monetary policy meeting is set for September 17 and 18.

Inflation and Yen Weakness Drive Pressure

One of the central reasons behind the growing expectations is persistent inflationary pressure.

The Japanese yen has remained relatively weak, increasing the cost of imported goods and energy. Rising international oil prices have added another potential source of inflation, particularly as the global energy market faces uncertainty.

BOJ Governor Kazuo Ueda has already indicated that policymakers will examine inflation risks closely when deciding whether another rate increase is appropriate.

The central bank has previously raised rates five times and kept its policy rate unchanged at its July meeting.

Adviser Changes His Forecast

Aida’s latest prediction is notable because he has historically been viewed as a relatively strong opponent of rapid BOJ tightening.

He now expects a September increase followed by another possible move by January 2027. After that, he anticipates a slower pace of roughly one increase every six months.

Aida also cautioned that raising rates too quickly could weaken economic activity, highlighting the difficult balance facing policymakers.

Government Policy Adds Another Complication

The timing of a possible rate increase is also connected to domestic political developments.

Japan’s parliament is expected to consider Prime Minister Takaichi’s proposal to suspend an 8% levy on food products for two years when lawmakers return for an extraordinary session in October.

The combination of tax changes, inflation and monetary tightening could create competing pressures for the government as it attempts to support household purchasing power while maintaining economic stability.

Japan’s Finance Minister Satsuki Katayama has emphasized that monetary-policy decisions remain the responsibility of the central bank.

Yen Could Benefit From Higher Rates

A rate increase could provide some support to the Japanese currency by narrowing the interest-rate gap between Japan and other major economies.

The yen has already strengthened as investors increasingly anticipate BOJ tightening. At the same time, expectations of higher Japanese rates have contributed to changes in global currency and bond markets.

A stronger yen could reduce the cost of imported energy and other goods, potentially easing some inflationary pressure. However, it could also create challenges for Japanese exporters by making their products relatively more expensive overseas.

Global Markets Watching Japan

Japan’s monetary-policy direction has become increasingly important for international investors.

The country is one of the world’s largest financial markets, and changes in Japanese interest rates can influence currency trading, government bonds and global investment flows.

A faster-than-expected BOJ tightening cycle could encourage Japanese investors to shift more money toward domestic assets, potentially affecting markets elsewhere.

September Meeting Becomes Critical

The BOJ’s September meeting is therefore attracting unusually close attention.

Governor Ueda has signaled that policymakers will evaluate inflation and economic conditions rather than commit in advance to a particular decision. Meanwhile, comments from government advisers and BOJ officials have strengthened expectations that another increase could be imminent.

If the central bank raises rates on September 17–18, it would mark another important step in Japan’s gradual departure from the ultra-loose monetary policies that dominated its economy for decades.

For investors, businesses and households, the key question will be whether the BOJ can contain inflation and stabilize the yen without placing excessive pressure on Japan’s economic recovery.