Key facts
- Former BOJ board member Makoto Sakurai expects the central bank to raise rates roughly once every three months.
- Sakurai forecasts Japanese interest rates will reach 2% by June 2027.
- He anticipates consumer inflation may exceed 3% by year-end and early next year.
- The BOJ is expected to revise inflation forecasts upward in its October outlook report.
- Sakurai believes the yen will not rebound unless Prime Minister Sanae Takaichi's fiscal policy changes.
Former Bank of Japan board member Makoto Sakurai said on Thursday that the central bank is likely to raise interest rates about once every three months, aiming to reach 2% by June 2027 to counter increasing inflationary pressures. Sakurai noted that the BOJ has shifted its policy to focus more on broader price increases, influenced by rising fuel costs, a weak yen, and demand from the AI sector.
He projected that consumer inflation could surpass 3% by the end of this year and into early next year, which would necessitate more aggressive rate hikes from the BOJ to prevent inflation from exceeding its 2% target. Sakurai suggested that with support for higher rates from US Treasury Secretary Scott Bessent, the BOJ is likely more convinced to accelerate its rate-hiking pace.
The BOJ is anticipated to upgrade its inflation forecasts in its upcoming quarterly outlook report in October and potentially raise rates again in December. Sakurai indicated that a significant upward revision to price forecasts could lead to a rate hike in October instead of December. He estimated that after an expected year-end rate hike to 1.5%, rates would likely rise to 1.75% in the first quarter of 2027 and reach 2% by June of the same year. He added that the terminal rate could be higher than 2% if inflation remains elevated around 3%.
Despite the BOJ's recent rate hike to 1.25% and its governor signaling a new phase focused on preventing inflation overshoots, the yen weakened as investors perceived the message as not hawkish enough. Sakurai stated that while two dovish dissenters at the last meeting might not halt further rate increases, an aggressive hiking pace may not significantly support the yen. He believes the yen will continue to decline unless Prime Minister Sanae Takaichi alters his expansionary fiscal policy, suggesting that even aggressive rate hikes would only marginally slow the yen's depreciation.