Japan Signals Shift as BOJ Prepares for Further Rate Hikes

U.S. Treasury Secretary Scott Bessent has called on the Japanese government to give the Bank of Japan greater freedom to raise interest rates and reduce its reliance on ultra-loose monetary policy, arguing this would help stabilise the yen and restore balance to Japan’s economy. His comments came just before the BOJ’s two-day policy meeting, where rates were expected to remain unchanged at 0.5%.

Markets interpreted the statement as a signal that Japan could move toward an earlier-than-expected rate hike, possibly by December or January, given inflation remains above target and the yen continues to weaken. The Japanese government now faces a delicate trade-off between sustaining fiscal support and maintaining monetary discipline to keep inflation expectations and currency stability in check.

Why this is important: The development signals growing international pressure on Japan to shift away from its long-standing ultra-loose monetary policy, which has kept rates near zero for years. If the BOJ continues to tighten, it could mark a major turning point for global fixed-income markets. Higher Japanese rates would likely push up domestic bond yields, strengthen the yen, and trigger capital flows out of foreign bonds back into Japan. For global investors, this means potential volatility across bond and currency markets, as Japan’s low-rate anchor has long served as a stabilising force in global liquidity. In short, the U.S. call for BOJ flexibility raises the odds of Japan joining the global trend toward monetary normalisation—an event with broad implications for yields and funding costs worldwide.