BOJ Set to Raise Rates Every Quarter to Combat Inflation

A former Bank of Japan policymaker predicts that the central bank will raise interest rates every quarter to combat inflationary pressures. Makoto Sakurai, a former BOJ board member, expects rates to reach 2% by June next year.

The BOJ raised its key lending rate to a 31-year high of 1.25% in September and is shifting its policy approach to focus on addressing broadening price pressures from surging fuel costs. Sakurai notes that the cost of importing crude oil has spiked around 70-80% since the US attack against Iran in February.

He also attributes rising demand for AI-related goods to underpinning manufacturers' profits and fuelling demand-driven price pressures, which will force the BOJ to step up hikes. Consumer inflation may exceed 3% by year-end through early next year, according to Sakurai, who retains close ties with incumbent policymakers.

While some investors see the rate hike as not hawkish enough, Sakurai believes that the BOJ is well aware of price pressures and will continue to raise rates. He predicts that interest rates will reach 1.5% by year-end, followed by a hike to 1.75% in the first quarter of 2027 and 2% by June next year.