The Bank of Japan intends to lift its policy rate to 1.25% from 1.0% at its meeting later this month, sources familiar with the matter said, Kyodo News reported on September 9. The increase would take Japanese borrowing costs to their highest level in roughly 31 years.

A move at the two-day meeting starting on September 17 would come just three months after the BOJ's June hike, quickening a tightening cycle that has so far proceeded at roughly six-month intervals since the bank ended its negative interest rate policy in March 2024. That decision dismantled a decade-old easing programme built to pull the economy out of deflation.

The central bank is acting against the risk that prices rise faster than forecast, driven by higher crude oil prices and a weak yen. Officials will keep assessing economic and price conditions through the meeting before settling on a final decision.

Calls to arrest the yen's slide against the US dollar have grown louder. The currency's weakness stems largely from the gap between Japanese and US interest rates.

Pressure from US President Donald Trump's administration has also fed into the debate. Washington is concerned that a soft yen and climbing Japanese government bond yields could drag US Treasury yields higher.

US Treasury Secretary Scott Bessent told American media on August 31 that he was confident the Japanese government and the BOJ would act to strengthen the yen.

BOJ Governor Kazuo Ueda said after a meeting of Group of 20 finance ministers and central bank governors in North Carolina on September 1 that the bank wanted to weigh a rate increase at every policy meeting, including the September gathering, while gauging the risk of inflation running above expectations.

Tighter policy would push up borrowing costs for Japanese companies and households, with a possible drag on economic activity.