BOJ to Hike Rates Every Quarter Amid Inflation Fears

The Bank of Japan (BOJ) is expected to raise interest rates roughly once every three months, according to former bank board member Makoto Sakurai. He predicts that interest rates will reach a 31-year high of 2 percent by around June next year. This move aims to combat mounting inflationary pressures.

The BOJ has already shifted its policy approach to address broadening price pressures from surging fuel costs, which have increased by around 70-80% in recent months due to the US attack against Iran in February. A weak yen and robust AI-related demand are also boosting manufacturers' profits, underpinning the economy and fuelling demand-driven price pressures.

Consumer inflation may exceed 3 percent by year-end through early next year, forcing the BOJ to step up hikes to keep underlying inflation from overshooting its 2 percent target, Sakurai said. The BOJ will likely revise up its inflation forecasts at its quarterly outlook report due in October and raise interest rates again most likely in December.

After the rate hike to 1.5 percent expected by year-end, the BOJ will likely raise rates to 1.75 percent in the first quarter of 2027 and to 2 percent by June next year, Sakurai added. While the BOJ's terminal rate is seen around 2 percent, the level could be higher if inflation remains elevated around 3 percent.