An economic adviser to Japanese Prime Minister Shigeru Ishiba has significantly pulled forward his projection for the next interest rate hike by the Bank of Japan (BOJ), moving the expected timeline from January next year to this month. Takuji Aida, chief Japan economist at Amundi and a key consultant to the premier, now anticipates the central bank will raise rates at its upcoming September 17-18 policy meeting.

In his latest research note released Monday, Aida outlined a scenario where the BOJ could lift rates twice in quick succession. If the bank acts in September as he expects, it may deliver another increase before January next year before slowing the pace to roughly once every six months. He cautioned that tightening too early or too aggressively could place an undue burden on Japan's economy, which remains in a fragile recovery phase.

Why the timing suddenly shifted from January to September

Aida has long been regarded as one of Japan's "reflationist" economists, advocating for a mix of aggressive fiscal stimulus and accommodative monetary conditions to support domestic demand. He has repeatedly expressed reservations about rapid monetary tightening in the past, making his abrupt revision a notable policy signal in itself. The factors driving his changed view include a persistently weak yen, rising inflation risks, and continued increases in service prices across the economy.

In Aida's assessment, the constraints facing the BOJ are shifting. Yen depreciation could keep feeding imported inflation into domestic prices, forcing the central bank to take a more proactive stance against upside price pressure. However, with domestic demand still recovering, overly rapid rate increases risk dampening household consumption and business investment. Rather than suggesting Japan has entered a phase of sustained rapid tightening, Aida believes a narrow window has opened that requires earlier action than previously thought.

The period before the October extraordinary Diet session may be the BOJ's optimal window

Aida describes September as a "narrow window" for rate action, with one key reason rooted in Japan's domestic political calendar. The government is expected to convene an extraordinary Diet session in early October, with a major agenda item being the administration's proposal to adjust the consumption tax rate on food items. Food currently carries an 8% consumption tax, and the Ishiba administration is planning tax reduction measures to ease household cost-of-living pressures.

If the BOJ delays action until after October, the monetary adjustment could overlap with fiscal and tax policy discussions in the extraordinary session, complicating policy coordination. By acting in September, the central bank can complete a rate adjustment before the government's new fiscal measures formally enter Diet deliberations. From a policy mix perspective, if the food tax cut is ultimately approved, it could partially offset the pressure on households' real purchasing power from higher rates, creating a buffer between fiscal and monetary policy. However, the food tax adjustment remains in the legislative pipeline, with the exact reduction size, duration, and effective date still pending Diet review. Aida's projection is therefore a policy forecast based on the current political schedule rather than an indication that the government and BOJ have coordinated on a September hike.

BOJ officials begin downplaying the fixed "once every six months" rhythm

Recent comments from BOJ officials have added momentum to expectations for a September move. Governor Kazuo Ueda, speaking after attending the G20 finance ministers and central bank governors meeting in Asheville, North Carolina, on September 2, said the policy board would discuss whether to adjust rates at every meeting, including the upcoming September 17-18 session. Ueda also noted that with underlying inflation gradually approaching the 2% target, monetary policy needs to place greater emphasis on the risk of further price increases than in the past.

A day later, board member Takata Koji said in Sapporo that 2026 could become a major turning point for Japan's monetary policy, and that rate hikes should not be constrained by the previous roughly "once every six months" rhythm. Instead, adjustments should be made flexibly in response to inflation, economic growth, and financial conditions. Takata did not explicitly endorse a September hike or reveal a preferred magnitude, but his remarks further eroded the market's assumption that the BOJ must wait fixed intervals before acting. This aligns closely with the core thrust of Aida's latest report: the BOJ has no reason to mechanically wait until January if inflation and exchange rate conditions continue to deteriorate.

Yen weakness is becoming a decisive variable for BOJ policy

Recent sharp fluctuations in the yen have also strengthened the case for earlier rate action. On September 3, the dollar-yen pair briefly fell below 155.28, with the yen surging more than 2% in a single day to its strongest level in about a month. Earlier, as dollar-yen approached 160 or higher, Japanese authorities had intervened massively in the foreign exchange market to stem further yen depreciation. Ministry of Finance data showed that between July 30 and August 26, authorities sold dollars and bought yen in intervention totaling approximately 15.4 trillion yen, a record for a single-month intervention in Japan. Top currency official Atsushi Mimura subsequently stated that the government is "neither reassured nor satisfied" with current foreign exchange conditions, signaling Tokyo remains on high alert.

Under these circumstances, relying solely on selling foreign exchange reserves to stabilize the yen is becoming increasingly costly, and using higher policy rates to narrow the Japan-U.S. interest rate differential is emerging as a more sustainable approach in the market's view. U.S. Treasury Secretary Scott Bessent has also continued to publicly urge Japan to adopt clearer monetary policy measures. During the G20 meetings, Bessent emphasized in his meeting with Ueda that Japan's monetary policy formulation and communication need to better anchor inflation expectations while avoiding excessive exchange rate volatility.

Markets are already pricing in a 1.25% policy rate

With BOJ officials turning more hawkish, the yen under sustained depreciation pressure, and a government adviser revising his forecast, market pricing for a September hike has clearly intensified. Based on current expectations, if the BOJ raises rates by 25 basis points at the September meeting, the policy rate would move from 1% to 1.25%. While this level remains far below major economies like the United States, for Japan — which has long been in a zero or negative interest rate environment — it would mark a significant acceleration in monetary policy normalization.

What truly deserves attention is not just whether the BOJ hikes in September, but whether it is changing its previously slow, predictable policy rhythm. Aida's current base path is: a September hike first, followed by another adjustment before January next year, then a return to roughly one hike every six months if the economy and inflation broadly align with expectations. This implies he does not expect sustained rapid tightening, but rather a denser cluster of policy adjustments using the current window before slowing down again.

Of course, this path remains only a projection. Whether the BOJ hikes at the September 17-18 meeting, whether it chooses 25 basis points, and whether it acts again before January all require individual votes by the policy board. The most significant meaning of Aida's revision is not that it locks in a fixed rate hike schedule, but that a government economic adviser who has long been cautious about rapid tightening now believes the yen and inflation environment make it difficult for the BOJ to continue waiting until January to act.