US Treasury Secretary Scott Bessent is intensifying pressure on Tokyo to tighten monetary policy. In this context, a policy board member of the Bank of Japan has stated that the central bank needs to raise interest rates further to ensure it does not fall behind in the fight against inflation.

Bank of Japan Monetary Policy Board member Kazuyuki Masuda made these remarks on Thursday. The central bank is set to hold its monetary policy meeting next week, with market expectations widely pointing to an increase in the policy rate to its highest level in over three decades. The yen has slipped to a 40-year low this year, exposing Japan to pressure from the United States to lift rates and bolster the currency. Bessent commented on Tuesday that he has "quite complete information" regarding the BOJ's policy direction.

Speaking to business leaders in Fukui, Masuda indicated that if inflation accelerates, the BOJ "might inevitably need to raise the policy interest rate rapidly." He added, "To complete the normalization of Japan's monetary policy, I firmly believe the central bank must push the policy rate higher. The most critical issue right now is ensuring that core inflation does not significantly exceed 2%."

Market participants overwhelmingly anticipate a 25-basis-point hike next week, which would bring the rate to 1.25%. After decades of deflation and negative interest rates, the BOJ has been steadily advancing its monetary policy normalization. The last rate increase occurred in June, lifting the rate to around 1%, a 31-year high.

Masuda stated that Japan has moved beyond deflation and that the issue of negative real interest rates "should be resolved as soon as possible." Bessent's assertion that he holds "asymmetric information" on the intentions of Japanese monetary policymakers has further fueled market expectations for a hike.

In July and August, Japan and the US conducted a joint currency intervention totaling $96 billion, their first such coordinated action in nearly three decades. Analysts suggest this was partly aimed at preventing Japan from selling US Treasuries to shore up the yen. Inflation remains elevated in Japan, and the US continues to press the BOJ for more decisive action. Speculation is growing that the bank could consider a larger rate increase or signal another hike when it convenes again in October.

Following the joint intervention, the yen strengthened notably, now trading at 153.30 against the dollar, its highest level in six months; in July, it had weakened to near 164 per dollar. Additionally, Japan's 10-year government bond yield has surged past 3%, hitting a 30-year high amid a global bond selloff. Bond yields move inversely to prices.

The yen was flat on Thursday at 153.45 per dollar following Masuda's speech. Stefan Angrick, chief economist for Asia-Pacific at Moody's, noted that Masuda, who joined the BOJ board last year from Mitsubishi Corporation, was previously seen as a centrist with "not much to say" compared with his more hawkish colleagues. However, as the central bank's overall tone has shifted, his statements have become more outspoken.

Angrick remarked, "This speech is another signal that the central bank is approaching a rate hike." He predicts the BOJ will not make a drastic move next week but will instead "accelerate the pace of hikes, raising rates every three months." He added, "The BOJ has historically been cautious and slow to adjust its pace."