A former BOJ board member says the Bank of Japan could raise its policy rate to 2% by the middle of next year, advancing through its rate-hike cycle roughly once every three months. The current rate is 1.25%, with forecasts pointing to 1.5% by year-end, 1.75% in early 2027 and 2% by around June.
The view that the Bank of Japan will raise rates roughly once every three months has gained support, with former board member Sakurai Makoto (櫻井誠) suggesting that the current 1.25% policy rate could be raised to 2% by around June next year. This would imply gradual increases to 1.5% by the end of this year and 1.75% in early 2027.
In forecasts from economists surveyed in a market poll, many expected the Bank of Japan to raise rates to 1.5% by the end of March 2027 and to 1.75% in the second quarter of 2027, but Sakurai Makoto (櫻井誠)'s view suggests more aggressive tightening than these projections. The Bank of Japan raised its policy rate by 25 basis points to 1.25% last week.
Sakurai Makoto (櫻井誠) explained that the shift in its view of inflation risks represented a fundamental change in policy, and pointed to higher energy costs, including crude oil, as a factor increasing upward pressure on prices. The view was also expressed that a weaker yen would make it more difficult to combat inflation and that interest-rate differentials would continue to put pressure on the yen.
The next Monetary Policy Meeting is scheduled for 29–30 October, and developments in the yen and in the US-Japan interest-rate differential are expected to become a focus for the market again. Sakurai Makoto (櫻井誠) said that the key will be how the Bank of Japan identifies the policy turning point so that it does not suppress inflation excessively.