A former Bank of Japan board member suggests the central bank is likely to align with widespread market expectations by raising its benchmark interest rate next month, with another potential increase following as early as January.
Traders were pricing in approximately an 80% probability of a rate hike at the Bank of Japan's next policy decision on September 18, as of Monday afternoon Tokyo time.
Seiji Adachi, who served on the BOJ's policy board until March 2025, stated in an interview that the yen's continued weakness—even after coordinated intervention by Japanese and U.S. authorities—means that holding rates steady could trigger another bout of yen selling, thereby intensifying inflation risks driven by rising import costs.
"The Bank of Japan is truly caught in a tight spot. The market has already almost fully priced in a rate increase," Adachi said. "If the BOJ does not act, the yen could depreciate sharply once again."
On Monday afternoon, the yen was trading at approximately 159.20 against the U.S. dollar in Tokyo, hovering not far from the psychologically significant 160 level.
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