BOJ could raise rates every quarter, ex-policymaker says

The Bank of Japan (BOJ) may raise interest rates every quarter, aiming for a 2% target by June next year, according to former bank board member Makoto Sakurai. The central bank recently increased rates to a 31-year high of 1.25% in September to tackle rising inflation driven by surging fuel costs. Government data reveals a 70%-to-80% spike in crude oil import costs since February due to the US attack on Iran.

Additionally, a weak yen and strong demand for AI-related products are boosting manufacturers' profits, contributing to price pressures. The BOJ, aware of these pressures, has changed its approach to inflation. Consumer inflation could surpass 3% by year-end, compelling the BOJ to accelerate rate hikes to prevent underlying inflation from exceeding its 2% target.

The central bank is likely to revise up its inflation forecasts at its October outlook report and raise rates again in December. If the price forecast revision is significant, the BOJ might hike rates in October instead of December. Following the expected rate hike to 1.5% by year-end, the BOJ could raise rates to 1.75% in the first quarter of 2027 and 2% by June.

The terminal rate is projected around 2%, but could be higher if inflation remains elevated at 3%. While the yen may not rebound unless Prime Minister Sanae Takaichi changes fiscal policy, the faster rate hikes will not significantly support the currency.