Following intense public pressure from US Treasury Secretary Bessent, Bank of Japan Governor Kazuo Ueda now faces the exceptionally high risk of severe turbulence in financial markets as he prepares this month's policy decision.

If Tokyo disregards Bessent's barely veiled call for interest rate hikes, it risks not only catching traders who are fully positioned for tighter policy off guard, but also triggering a sharp depreciation of the yen. That, in turn, would likely push up already rising inflation expectations, which are approaching 3%.

Nevertheless, a modest increase of 25 basis points from the current 1% benchmark rate may not deliver substantial results, even though it would mark an acceleration in the central bank's hiking cycle. The hawkish board member Takata floated the prospect of a larger rate increase on Wednesday, potentially diminishing the impact of a smaller quarter-point move.

From one angle, Bessent's pressure could produce an unintended benefit, as it makes it harder for Prime Minister Takichi Ishiba, who is eager to add more fuel to the economy, to obstruct the central bank's tightening efforts. Yet, this dynamic also breeds significant risks.

"After such an explicit statement from the US, I think it would create problems for the Bank of Japan if they don't act," said Ayako Fujita, chief Japan economist at J.P. Morgan Securities. "But if the BoJ is seen as unable to raise rates without US backing, that would pose a huge risk to the effectiveness of the move."