SynopsisThe Bank of Japan is set to debate a September rate hike as Governor Kazuo Ueda signals that policymakers will closely assess rising inflation risks, the weak yen and global economic conditions. Markets are increasingly pricing in a rate increase, with Japanese bond yields climbing to multi-decade highs.ETMarkets.comBOJ rate hike bets strengthen as Ueda flags rising inflation risks.The Bank of Japan is set to debate whether to raise interest rates at its September policy meeting, with Governor Kazuo Ueda signalling that policymakers will focus on whether inflationary risks are intensifying, Reuters reported.Ueda’s remarks, made after attending the G20 finance leaders’ gathering in Asheville, North Carolina, strengthened expectations that the BOJ could raise rates this month. Ueda said the central bank would assess whether economic conditions were developing in line with its projections and whether upside risks to prices were increasing.The BOJ’s next policy meeting is scheduled for September 17-18, making Ueda’s comments his final public remarks on monetary policy before the central bank enters its customary blackout period.Ueda stopped short of committing to a September rate increase but indicated that policymakers would thoroughly assess the case for further tightening. The central bank has raised rates five times so far and remains mindful of the cumulative impact of those increases on economic activity.Read more: Global Market: Yen weakness puts BOJ under pressure for faster monetary tighteningInflation risks in focusUnderlying inflation is currently close to the BOJ’s 2% target, increasing the importance of monitoring factors that could push prices higher. Ueda highlighted several risks, including potential inflationary pressures stemming from the conflict in the Middle East, strong demand linked to artificial intelligence investment and the impact of a weaker yen on import prices.Ueda also said recent economic and price data were broadly tracking the BOJ’s baseline projections outlined in its July outlook report, suggesting that the central bank’s overall policy approach remains unchanged.Hawkish BOJ board member Hajime Takata also reinforced expectations of further tightening. In a separate speech in northern Japan, Takata argued that the central bank should respond flexibly to inflationary pressures rather than follow a predetermined schedule for rate increases.The hawkish signals pushed the yield on two-year Japanese government bonds, which is particularly sensitive to expectations for monetary policy, to 1.830% on Wednesday, its highest level since 1995.Pressure from weak yen and bond yieldsUeda confirmed that he had met U.S. Treasury Secretary Scott Bessent on Sunday but declined to disclose details of their discussions.The meeting came after the U.S. Treasury Department said Bessent had called for decisive monetary action to address the weakness of the yen. His repeated calls for higher Japanese interest rates, combined with increasingly hawkish signals from BOJ officials, have helped push markets toward almost fully pricing in a rate increase at the September meeting, Reuters reported.Japanese government bond yields have also climbed sharply. The 10-year JGB yield recently reached 3% for the first time since 1996, amid a broader global rise in bond yields and concerns over inflation.Ueda said the recent increase in Japanese bond yields was largely driven by global upward pressure but stressed that the BOJ would continue to closely monitor financial markets.The BOJ raised its policy rate to 1% in June, its highest level in 31 years, as policymakers judged that Japan was moving closer to achieving its 2% inflation objective on a sustainable basis. The central bank kept rates unchanged in July but indicated that growing price pressures, including those stemming from geopolitical risks and the weak yen, could warrant another increase in the near term.With inflation remaining close to target and markets already heavily pricing a September move, the BOJ’s upcoming meeting is likely to be closely watched for signs of whether policymakers are prepared to proceed with another rate increase.(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of The Economic Times.)Read More News on(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. 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