A Japanese central bank official has injected fresh uncertainty into the September policy meeting outlook, suggesting that while another rate increase is highly likely, the magnitude may not necessarily match the 0.25 percentage point move that markets have come to expect as standard.

With market pricing for a September hike by the Bank of Japan now hovering near full certainty, board member Hajime Takata said the size of the next increase does not have to be 0.25 percentage points, while also stressing that the central bank needs to adopt a "more flexible approach" when adjusting policy.

The comments directly challenge the prevailing market assumption. After multiple consecutive increases of 0.25 percentage points, investors had widely assumed this incremental pace would continue unchanged.

Takata: Real rates remain deeply negative

Takata's speech contained several other noteworthy points. He said real interest rates are still at extremely low levels, making it necessary to assess the degree of monetary easing through further rate hikes. He declined to comment on the level of long-term Japanese government bond yields, but regarding the recent rise in long-term yields, he noted that it "reflects a global trend, and I do not see anything unusual about it."

This stance implies that even if long-end rates move higher, it will not serve as a reason for the central bank to pause its tightening cycle.

Ueda's clear signal points toward September action

Prior to Takata's remarks, Governor Kazuo Ueda had already indicated publicly that a September move was firmly on the table, speaking after the G20 finance ministers and central bank governors meeting.

Ueda told reporters: "Monetary conditions remain accommodative, so we want to continue raising rates. We will discuss policy while considering upside risks to prices. We have already raised the policy rate five times cumulatively, so we need to carefully examine what cumulative impact these moves will have on the economy. I hope to discuss at the next meeting whether the probability of the economic scenario materializing has increased, and whether inflation risks have heightened."

This appearance marked Ueda's final public engagement before the September 17–18 policy meeting.

Heightened market vigilance ahead of September decision

According to Bloomberg, overnight index swaps now imply nearly a 100% probability of a September hike, and Ueda made no attempt to push back against those expectations.

The yen is currently approaching the 160 level, with carry trade activity showing signs of resurgence. Should the central bank follow through with a hike, it could trigger significant volatility across global arbitrage funds and Japanese equities, with spillover effects on global risk sentiment.

Meanwhile, the hawkish camp at the U.S. Federal Reserve is also amplifying its rhetoric. Following Kevin Warsh's warning on inflation risks, Fed Governor Michelle Bowman has stated clearly that if inflation does not cool sufficiently, the Fed should respond decisively with rate increases.

The alignment of tightening signals from both major central banks is adding a new layer of uncertainty to global markets.

On September 10, BOJ board member Kazuo Masuda is also scheduled to speak publicly, with market participants viewing this as another forward-looking signal ahead of the September meeting.