BOJ could raise rates every quarter, ex-policymaker says

Former Bank of Japan board member Makoto Sakurai predicts the central bank could raise interest rates every three months, aiming for a 2% rate by next June. The recent 1.25% rate increase in September reflects the BOJ's shift to combat rising inflation pressures, driven by surging fuel costs and a weak yen. Government data indicates crude oil import costs have surged 70%-80% since the US attack on Iran in February.

Sakurai attributes these price pressures to a robust demand for AI products and government expansionary fiscal policy. Consumer inflation may exceed 3% by year-end, compelling the BOJ to accelerate hikes. With support from US Treasury Secretary Scott Bessent, the BOJ seems increasingly confident in its ability to raise rates ahead of schedule.

If the inflation forecasts are significantly revised upwards, the BOJ may consider an October rate hike instead of waiting until December. A likely progression is raising rates to 1.75% in Q1 2027 and 2% by June next year. While the BOJ’s terminal rate is expected around 2%, it could be higher if inflation stays elevated. Despite the BOJ’s governor signaling a new inflation-focused phase, investor skepticism remains due to the central bank's perceived lack of hawkishness.

The yen is expected to continue falling, barring changes in Prime Minister Sanae Takaichi's fiscal policy.