Japan's benchmark Nikkei 225 index closed 2.9% lower at 64,323.64 points, succumbing to a widespread selloff across the market. According to data from Tokyo Tanshi, the probability of a rate hike by the Bank of Japan in September has surged to 97%.

Earlier this week, BOJ Governor Kazuo Ueda stated that the central bank's policy board would factor upside risks to prices into its decision-making. This remark has intensified speculation among traders that a rate increase could be delivered in late September.

Overnight index swap rates now imply a 99% chance of a September move, and Ueda's failure to push back against that market expectation is being interpreted as the strongest possible confirmation of the looming action. He further noted that current economic data aligns broadly with the central bank's forecasts, signaling that the BOJ remains on track to continue normalizing policy.

Ueda also highlighted that price trends are now moving very close to the central bank's 2% inflation objective. His comments come on the heels of a public call from U.S. Treasury Secretary Scott Bessent for Japan to take decisive measures against the yen's weakness, which has further amplified expectations that the BOJ will act soon.

Another focal point for investors has been the recent volatility in Japan's government bond market. On Wednesday, the 10-year JGB yield climbed to 3.010%, marking its highest level since September 1996. Meanwhile, Satsuki Katayama noted that no delegation at the G20 meetings expressed concerns about Japan's fiscal situation. Ueda, for his part, attributed the rise in bond yields to a broader global trend, rather than domestic-specific factors.