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Japan’s Rate Hike Forecast Accelerates as Yen Weakens

By Markets Desk · 2026-09-18 · 1 min read
A traditional Japanese wooden bridge spanning a calm river
Illustration: Tradingbird

Takuji Aida, a key adviser to Prime Minister Sanae Takaichi, now projects a September rate hike from 1%. The policy shift marks a break from the government’s reflationist stance.

Takuji Aida expects the Bank of Japan to lift rates from 1% on September 18. Aida advises Prime Minister Sanae Takaichi and sits on her growth-strategy panel. Ten months ago, Aida warned against a December hike. His position has shifted due to currency pressures.

Markets have priced a move to 1.25%. This is the highest rate since 1995. The shift comes as July CPI stood at 1.9%. The government’s reflationist doctrine relied on cheap money and fiscal expansion.

Yen Weakness Drives Policy Shift

The yen fell to 164 per dollar in late July. This is the weakest level in nearly 40 years. Tokyo spent approximately $85 billion over two days to support the currency. The US Treasury sold euros to buy yen in a joint operation.

This was the first coordinated support since 1998. The intervention did not close the interest-rate gap. A weak yen raises import costs for food and energy. This undercuts the planned food-tax cut from 8% to 1%.

Fiscal Constraints Tighten

The 10-year JGB yield neared 3% on September 1. This is the first time since 1996. Japan’s debt exceeds 200% of GDP. Higher rates increase the cost of servicing this debt.

Economists warn that defending the yen and the budget are mutually exclusive. A weak yen also pressures other Asian currencies. If Japanese savings stay domestic, global funding pools shrink.

Political Timing of Hike

Aida moved the forecast ahead of the October Diet session. BoJ Governor Kazuo Ueda noted upside inflation risks. The bank will debate a rate move in September. The government favored an immediate rise.

Based on reporting by Eurasia Review, compiled by the Tradingbird desk.

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