The Bank of Japan is expected to raise interest rates in December, and the government is likely to tolerate the move, according to three government sources familiar with the discussions.
The BOJ appears ready to lift its policy rate to 0.75% from 0.5%. Governor Kazuo Ueda signaled the possibility of a hike in a speech on Monday, the sources said. If confirmed, it would be the first rate increase since January.
One source said the government’s stance is clear: “If the BOJ wants to raise rates this month, it should make its own decision.” The source added it was nearly certain the bank would proceed with a hike.
Another source noted the administration is prepared to accept a December increase. All sources spoke anonymously as they were not authorized to comment publicly.
Ueda said on Monday that the BOJ would weigh the “pros and cons” of a December rate hike, signaling a strong likelihood of action at the December 18–19 meeting.
His remarks pushed markets to price in an 80% chance of a hike. Some traders, however, focused on how Prime Minister Sanae Takaichi’s dovish government might respond.
Finance Minister Satsuki Katayama said on Tuesday that there was no policy gap between the government and the BOJ when asked about Ueda’s comments.
Even key reflationist advisers have not voiced opposition. Toshihiro Nagahama, a member of a government panel, told Reuters that Takaichi may accept a December hike if the yen remains weak.
The BOJ board is expected to make its final decision after reviewing data on domestic wages, the Federal Reserve’s policy decision next week, and any resulting market impact.
Attention will then shift to how far the BOJ intends to raise rates in the longer term — an issue Ueda has not yet clarified.
