BOJ seen hiking rates in September, with follow-up move likely by early 2027

The projection comes from a senior reflationist figure in the Japanese government, underscoring the administration's openness to further tightening by the BOJ as it unwinds years of ultra-loose monetary policy. The adviser's comments suggest a measured pace for rate increases, with the central bank unlikely to move aggressively in the near term.

The anticipated September hike would mark another step in the BOJ's gradual exit from decades of negative interest rates and massive asset purchases. The subsequent increase projected for January 2027 would bring the tightening cycle into the new year, signalling the central bank's commitment to achieving more sustainable price stability.

Economists and policymakers in Tokyo have increasingly acknowledged the need to normalise monetary conditions as inflation remains above the BOJ's historical comfort zone. The phased approach outlined by the Prime Minister's adviser aligns with expectations among analysts that the central bank will proceed cautiously to avoid disrupting economic growth.

The timing and pace of future BOJ decisions will likely depend on inflation readings, wage growth trends, and broader economic conditions in coming months. Financial markets have been closely watching signals from the Japanese government and central bank for clarity on the trajectory of monetary policy.