The Bank of Japan may consider raising interest rates again at its upcoming policy meeting on September 17 and 18, according to informed sources cited by Jiji press agency. Such a move would follow the central bank's rate increase delivered in June.

The sources pointed to rising risks of higher inflation as the key factor behind the potential additional tightening. Japanese consumer price inflation has remained persistently above the BoJ's 2 percent target for an extended period, reinforcing the case that price pressures may be becoming more embedded in the economy rather than proving transitory. The report adds to a series of signals in recent days pointing toward increased odds of a September policy move.

Odds of a September hike were already boosted following a hawkish Summary of Opinions from the BoJ's July policy meeting, which suggested internal debate within the Bank had been shifting in a more hawkish direction even before the latest report.

A separate report from the previous day added another dimension to the case for September action, suggesting the BoJ could face pressure to act given the recent joint currency intervention conducted alongside the United States to support the yen. The yen's extended weakness has been driven in large part by the wide interest rate gap between Japan and the United States, where the Federal Reserve has held rates at multi-year highs while the BoJ maintained its ultra-accommodative stance longer than any other major central bank. That framing implies the Bank may feel obliged to back the intervention with genuine policy tightening, rather than allow the currency support delivered through intervention to stand unsupported by fundamentals.

The reporting aligns with a broader yen thesis advanced by major financial institutions. Analysts at MUFG and Goldman Sachs have both argued that genuine, lasting yen strength depends on the BoJ actually delivering further tightening rather than on intervention alone. A September hike, if it materializes, would provide the joint intervention effort the fundamental backing that both firms have said is currently missing.

Notably, a BoJ rate increase in September would come at a time when other major central banks, including the Federal Reserve and the European Central Bank, are moving in the opposite direction toward rate cuts, marking an unusual policy divergence that could reshape carry trade dynamics and capital flow patterns across global currency markets.

Taken together, the Jiji report, the hawkish July Summary of Opinions, and the political economy pressure created by the joint intervention itself build a more coherent picture of a central bank increasingly likely to follow June's hike with another move in September. That combination is expected to keep September rate expectations firmly in focus for USD/JPY traders heading into the coming weeks.

Source: ForexLive / InvestingLive