An economic adviser to Japanese Prime Minister Sanae Takaichi is projecting that the Bank of Japan will raise its policy interest rate at its September 17-18 meeting, bringing it to 1.25%. That would mark Japan’s highest policy rate in decades, a notable shift for an administration that built its economic identity on expansionary, reflationist principles.
Takuji Aida, who serves as chief Japan economist at Crédit Agricole and advises Takaichi on economic matters, laid out a forecast that goes well beyond a single hike. He projects quarterly rate increases from September through January 2027, followed by semiannual adjustments after that.
From dove to grudging hawk
Aida himself has moved from a dovish posture to supporting faster rate increases. The catalyst is straightforward: the yen has been weakening, inflation risks are building, and service prices keep climbing.
The current BOJ policy rate sits at 1%. A 25 basis point increase to 1.25% is already largely priced into markets, suggesting investors had read the room before Aida confirmed the direction of travel.
External pressure meets domestic reality
US Treasury Secretary Scott Bessent has called for decisive BOJ action to stabilize the yen, adding a layer of international pressure on Tokyo to act.
Aida acknowledged the tension directly, warning about the economic consequences of tightening too quickly. The goal, as he framed it, is balance: enough tightening to stabilize the currency and cool inflation, but not so much that it chokes off the economic recovery Japan has spent years trying to engineer.
Japan’s parliament is also set to discuss suspending an 8% levy on food items for two years during an extraordinary session scheduled for early October. That fiscal move, if approved, would partially offset the tightening effect of higher rates on consumers.