TOKYO (Realist English). The key change in Ueda’s rhetoric is that while short-term policy was previously aimed at “pulling core inflation from below 2% up to 2%,” the priority has now shifted to “managing the risks of core inflation exceeding the 2% mark.”
This shift was already visible in the minutes of the July meeting, published on Monday.
Several board members noted at the time that the Bank of Japan needed to pay more attention to the risks of accelerating inflation. One of them stated bluntly: “The market expects the Bank of Japan to raise rates roughly every six months, but given that core inflation is already close to 2% and upside risks are strengthening, the actual pace of hikes may prove faster.”
Another warned: “The risk of waiting further can no longer be ignored — if inflation risks materialize, the economy could pay a huge price.”
At the press conference, Ueda also noted that he does not rule out either a 50 basis point hike or a series of consecutive increases — specific steps will depend on inflation dynamics.
Sources of Inflationary Pressure: Oil, AI Demand and a Weak Yen
The Bank of Japan’s statement named three main risk factors for accelerating inflation: rising energy prices due to the situation in the Middle East, expanding demand linked to artificial intelligence, and fluctuations in the yen exchange rate.
The rise in oil prices caused by the Middle East conflict is already translating into Japanese import costs. Ueda indicated that “secondary price growth is occurring” — pressure is spreading across a wide range of goods. The yen’s weakening further amplifies imported inflation, although expectations of a September hike had previously helped the yen move somewhat away from multi-decade lows. However, after the decision was announced, the yen unexpectedly weakened to 157.3 per dollar.
According to data from Japan’s Ministry of Internal Affairs and Communications, published on 18 September, the core consumer price index (excluding fresh food) rose 1.7% year-on-year in August — slightly below July’s 1.8%. However, Taro Saito, an economist at NLI Research Institute, expects that as the effect of utility subsidies fades, core CPI could exceed 2% as early as October and reach 3% by the end of the 2026 fiscal year in March 2027.
Split Vote and a “Dovish” Signal
The 7-2 vote was not unanimous. Board members Toichiro Asada and Ayano Sato, appointed by Prime Minister Sanae Takaichi, who is known for supporting easy monetary policy, voted against the hike. Asada argued that “core CPI is below 2%, and the economy cannot be considered strong,” while Sato argued that “economic and price growth have not accelerated enough to justify a hike now.”
This “dovish” split directly triggered the yen’s weakening after the decision. Naomi Muguruma, strategist at Mitsubishi UFJ Morgan Stanley Securities, noted: “Two votes against, plus the lack of a clear signal from Ueda on the timing of the next hike — this is a dovish outcome for the yen.”
Nevertheless, Ueda tried to smooth over the impression of a split, emphasizing: “There is no preset pace of hikes,” and each meeting will be assessed “in real time” taking into account the economic, price and financial situation.
External Pressure and the Rate Gap with the US
The hike took place against the backdrop of clear pressure from the United States. US Treasury Secretary Scott Bessent, after meeting with Ueda, expressed “resolute support for decisive market and monetary measures by Japan,” which most market participants interpreted as a signal from Washington to accelerate rate hikes.
The Federal Reserve raised rates on 16 September for the first time in three years, and the European Central Bank did so on 10 September — the synchronized pivot of major central banks toward tightening further narrowed the space for inaction by the Bank of Japan.
However, even after the hike to 1.25%, the Japanese rate remains significantly below the Fed’s 3.75–4.0% range. As Zhou Xuhai, a research fellow at the Institute of Japan of the Chinese Academy of Social Sciences, notes, “the market generally expects another 25 basis point Fed hike before the end of the year, while the Bank of Japan’s next move may only come in March 2027 — this means the BOJ’s pace of tightening significantly lags the Fed, and the yen will continue to remain under pressure in the medium term.”
Bank of Japan Meeting Parameters (September 2026)
| Parameter | Value |
| New rate | 1.25% (31-year high) |
| Previous rate | 1.0% |
| Step | +25 basis points |
| Vote | 7 “for”, 2 “against” |
| Interval since previous hike | 3 months (shortest since 1990) |
| USD/JPY after decision | ~157.3 |
| Neutral rate estimate | 1.1–2.5% |
What’s Next: October, December or January?
Ueda stated clearly: “There is no preset plan, for example, once every three months.” This means that determining the timing of the next hike has been entirely handed over to the data.
Tokyo Marine Asset Management, in a report after the meeting, forecasts a hike to 1.50% at the December meeting, but allows that if the Fed raises rates in October and pressure on the yen intensifies, the Bank of Japan may be forced to act earlier.
The Econoday consensus forecast points to the next hike in December or January — this would be the seventh increase since the start of normalization in March 2024. The next Bank of Japan meeting is scheduled for 29–30 October.
