Bank of Japan Expected to Raise Rates in September

The Bank of Japan is expected to raise its benchmark interest rate during its next policy decision on September 18, with a potential follow-up increase in January. This move comes as the yen trades near 159.20 per dollar and core inflation accelerated to 1.8% in July.

Former board member Seiji Adachi suggests the central bank is effectively "boxed in" by market expectations. He notes that U.S. Treasury Secretary Scott Bessent has called for policy action following currency interventions, providing Governor Kazuo Ueda a strategic opening to raise rates. This occurs despite the pro-stimulus stance of Prime Minister Sanae Takaichi's government.

While consumer spending fell 0.1% in the April-June quarter, Adachi forecasts that inflation could exceed 2.5%. This trajectory may require the central bank to push rates toward 2.75% by the end of next year to prevent the yen from weakening further.