Amid economic expansion, the Bank of Japan is anticipated to raise interest rates once again

Sakurai, a former member of the BOJ board, has forecast that economic circumstances will cause interest rates to rise to 1.5% in the next two years. 

Former BOJ board member Makoto Sakurai stated on Tuesday that the Bank of Japan is expected to raise interest rates once more in June or July and aim to boost its policy rate to at least 1.5% during the next two years.

Sakurai, who has tight ties with current officials, stated that the central bank has the flexibility to keep raising interest rates gradually because to expanding wage increases, the likelihood of long-term price increases, and Japan’s strong economic development.

Even though there is still uncertainty over the economic effects of US President Donald Trump’s proposals, the BOJ increased short-term interest rates from 0.25% to 0.5% last week.

“The BOJ will quickly take advantage of any chance to hike interest rates. Sakurai stated in an interview, “That’s the impression I got looking at how the BOJ hiked in January, instead of waiting until March.”

“If the BOJ wants to take action before domestic political uncertainty increases ahead of an upper house election that is likely to take place in July, there is even a chance that it could move the timing of its next rate hike to April,” he added.

The BOJ is likely to boost rates to 0.75% in June or July if the economy performs as expected. However, domestic politics might influence the timetable, Sakurai warned, with Prime Minister Shigeru Ishiba’s minority government facing poor support ratings and a weak political position.

The BOJ will provide new quarterly growth and inflation projections at its next policy meeting on March 18–19 and again on April 30-May 1.

With the belief that Japan was close to reaching its 2% inflation target in a sustainable manner, the BOJ lifted short-term rates to 0.25% last year, marking a historic departure from a ten-year stimulus program.

In an indication of its belief that wage and price hikes will spread, it hiked rates once more on Friday to 0.5%, a level not seen in Japan since the global financial crisis of 2008.

Although he gave few hints as to when and how quickly rates might rise in the future, Governor Kazuo Ueda stated that the central bank will continue to raise rates if the economy continues to recover.

In order to lower borrowing costs in the event of another economic slump, BOJ officials likely wish to hike short-term rates by at least 1.5% by the end of fiscal 2026, according to Sakurai.

“A hike to 1.5% would allow the BOJ to argue it is still supporting a fragile economy with some degree of accommodation,” he added, even if Japan’s nominal neutral rate may be a little higher.

“The BOJ may postpone raising if markets become erratic or if economic uncertainty in Japan increases. If not, rates will probably increase around twice a year over the next two years.

According to estimates by the BOJ staff, Japan’s nominal neutral rate is between 1% and 2.5%. Although many experts believe the neutral rate to be around 1%, Ueda has stated that it is too difficult to determine in real time.

According to Sakurai, the BOJ officials most likely believe that Japan’s neutral rate is between 1.5% and 2.0%.

In December, core consumer inflation in Japan reached 3.0%, the highest annual rate in 16 months. For over three years, it has above the BOJ’s 2% objective, strengthening the argument for the central bank to increase the still-low borrowing costs.