BOJ Interest Rate Hikes May Come Every Quarter to Combat Inflation

The Bank of Japan (BOJ) may raise interest rates roughly once every three months to combat inflationary pressures, according to Makoto Sakurai, a former bank board member.

Sakurai expects the central bank to push rates up to 2% by around June next year. In September, the BOJ raised interest rates to 1.25%, its highest level in 31 years, shifting its policy approach to address broadening price pressures from surging fuel costs.

The cost of importing crude oil has increased by 70-80% in recent months, which will boost consumer inflation ahead, Sakurai said. A weak yen and robust AI-related demand are also boosting manufacturers' profits, underpinning the economy and fuelling demand-driven price pressures.

Sakurai believes the BOJ is well aware of these price pressures, leading to a change in its approach to inflation. He predicts consumer inflation may exceed 3% by year-end through early next year, forcing the BOJ to step up hikes to keep underlying inflation from overshooting its 2% target.