Japan's BOJ hawkish member calls for faster rate hikes; market eyes 25-bp increase

According to Huoxing Finance, on September 10, Kazuyuki Masuda, a member of the Bank of Japan’s Monetary Policy Committee, stated on Thursday that Japan is no longer in deflation and that the central bank must address negative real interest rates as soon as possible while further raising policy rates. He warned that if underlying inflation significantly exceeds 2%, the Bank of Japan may be forced to accelerate the pace of rate hikes. The market currently expects the Bank of Japan to raise rates by 25 basis points to 1.25% at its upcoming meeting next week. Some traders even speculate that the central bank may signal another rate hike in October. U.S. Treasury Secretary Bessent previously said he was “quite familiar” with the Bank of Japan’s next move, further reinforcing market expectations of an imminent rate hike. Meanwhile, the yen has rebounded from a low near 164 in July to around 153.5, reaching a six-month high. Stefan Angrick, Moody’s Asia-Pacific Head of Economics, views Masuda’s hawkish remarks as another signal of the Bank of Japan’s path toward rate hikes and expects the central bank may eventually increase the frequency of rate adjustments to every three months. In the bond market, Japan’s 10-year government bond yield has surpassed 3%, hitting its highest level in about 30 years, indicating that markets are rapidly reassessing the asset pricing implications of monetary policy normalization in Japan.