Japan's BOJ Interest Rate Hike Looms as Aida Forecasts 1.25% in September

Japan's Prime Minister Sanae Takaichi has received economic advice from her chief Japan economist, Takuji Aida, who projects a significant increase in interest rates. Aida believes that the Bank of Japan will raise its policy interest rate to 1.25% at its September 17-18 meeting.

This would mark the highest policy rate in decades for Japan, a notable shift from the administration's previous expansionary and reflationist principles. The current BOJ policy rate is at 1%, and Aida's forecast includes quarterly rate increases from September through January 2027, followed by semiannual adjustments.

Aida has moved from a dovish posture to supporting faster rate increases due to the yen's weakening, building inflation risks, and climbing service prices. He acknowledged external pressure from US Treasury Secretary Scott Bessent, who called for decisive BOJ action to stabilize the yen.