BOJ Sets Sights on 2% Rate Target by Mid-2027 Amid Inflationary Pressures

The Bank of Japan may raise its benchmark rate to 2% by mid-2027 as it confronts broadening inflationary pressure from soaring energy import prices and a weak yen, according to former central bank board member Makoto Sakurai.

Sakurai said the BOJ's decision last week to take rates to 1.25 percent marked a fundamental shift in how the institution approaches inflation, with the central bank moving preemptively against cost pressures that threaten to push consumer inflation beyond its 2% target.

The cost of importing crude oil into Japan has jumped roughly 70-80% in recent months compared with levels before the US military action against Iran in February, and Sakurai expects consumer inflation to exceed 3% by year-end and into early next year.

Sakurai laid out a path for future tightening, predicting policy rate increases will occur approximately once every quarter over the coming months, culminating in a terminal rate of around 2% by June 2027.