Bank of Japan board member Kazuyuki Masu stated on Thursday that the central bank will persist in raising its benchmark interest rate to prevent the underlying price trend from exceeding the 2% target, a stance that bolsters market expectations of a rate increase at next week's policy meeting.

Speaking in a speech, Mr. Masu said, "Given that the current price trend is very close to 2% and financial conditions remain accommodative, the Bank of Japan will continue to raise the policy rate." He further emphasized, "From here on, the most important thing is to ensure that underlying inflation does not significantly overshoot 2%."

His remarks indicate that even with the next hike set to push the policy rate into the lower end of the central bank's estimated neutral range for the first time in this cycle, the Bank of Japan will not conclude its tightening campaign. The BOJ has estimated the neutral rate to be between 1.1% and 2.5%.

Mr. Masu underscored the need for further action to complete normalization, stating, "To complete the normalization of Japan's monetary policy, I strongly believe that the BOJ needs to raise the policy rate further. This would place the policy rate solidly within the estimated neutral band, ensuring sufficient flexibility to adjust quickly in either direction in response to economic conditions."

During his address, he also highlighted that the conflict in the Middle East has driven up fuel and chemical prices, consequently lifting broader goods costs. Examples he cited included higher transport fees for imported raw materials and increased costs of imported fertilizers, both of which are contributing to food price inflation.

Mr. Masu expressed concern, noting, "There is a worry that these price increases might not be a temporary shock but represent a more persistent trend, which could further push up the overall price level." He added, "If inflation accelerates at this stage, the BOJ may find it unavoidable to raise rates rapidly, and there is a certain risk in that scenario."

According to sources familiar with the matter, the central bank is leaning toward a 25-basis-point rate hike this month, bringing the benchmark rate to 1.25%, as a safeguard against upside price risks. These sources also said the BOJ does not rule out accelerating the pace of subsequent increases, as they still view inflation risks as tilted to the upside, with rising service prices and a persistently weak yen strengthening the case for action.

Notably, ahead of the June rate hike, Mr. Masu had already hinted at the necessity of acting, which boosted market confidence. He is also the last BOJ official scheduled to speak before next week's policy meeting. Swap contracts currently indicate an approximately 97% probability that the central bank will raise rates at the gathering.

U.S. Treasury Secretary Scott Bessent's repeated statements on the need for BOJ rate hikes have largely driven those expectations. Meanwhile, recent data has reinforced the rationale for a move.

The Ministry of Health, Labor and Welfare reported Tuesday that Japan's nominal wages rose 4.7% in July from a year earlier, accelerating from a revised 4% gain in June. This marks the fastest increase since 1997, surpassing economists' forecasts of 3.8%, and represents the sixth straight month of growth above 3%, the longest such streak in 34 years.

In a separate report on Tuesday, the Cabinet Office said Japan's second-quarter gross domestic product grew at an annualized rate of 1.4% from the prior quarter, up from the initial 1.1% reading but below the median economist estimate of 1.8%. The upward revision was driven by business fixed investment, which fell 0.9% quarter-on-quarter, better than the preliminary 1.2% decline.

Additionally, data released in late August showed Tokyo's key inflation gauge accelerated for a third consecutive month despite government measures to cut energy costs. The core consumer price index, excluding fresh food, rose 1.8% year-on-year in August, slightly faster than July's 1.7% increase, matching economists' expectations. Tokyo's inflation data is often viewed as a leading indicator of nationwide price trends.

The core-core index, excluding fresh food and energy, rose 2.0%, while the overall CPI gained 1.9% year-on-year. Key drivers included higher costs for durable goods in education and entertainment, medical expenses, a notable jump in rents, and increased restaurant costs. Separately, Japan's nationwide CPI excluding fresh food rose 1.8% year-on-year in July, accelerating from 1.6% in June and marking the second straight month of faster growth. The core-core measure gained 1.9%, and the overall index also rose 1.9%. Service prices, a critical gauge of inflation persistence, increased 1.2%, slightly faster than the pace seen in June.