BOJ may raise rates twice more as inflation risks grow
Anabelle Colaco
21 Jun 2026, 23:18 GMT+10
TOKYO, Japan: The Bank of Japan could raise interest rates twice more before the end of the current fiscal year as policymakers become increasingly concerned about inflation, former BOJ board member Makoto Sakurai said.
The comments come days after the central bank raised its short-term policy rate to one percent, the highest level in 31 years, in a move that Sakurai described as a significant shift in the bank's approach to monetary policy.
According to Sakurai, the BOJ's latest decision signaled a shift away from focusing primarily on achieving its two percent inflation target and toward preventing inflation from rising too far above that level.
"It was a major turning point in monetary policy as it meant the BOJ was now clearly shifting focus to beating inflation," Sakurai said in an interview.
"It showed the bank's growing alarm over inflation risk. The implication for future rate decisions could be huge," said Sakurai, who retains close contact with incumbent policymakers.
The former policymaker said a recent increase in wholesale inflation could soon filter through to consumer prices, making inflation data over the July-September period a key factor in determining the timing of the next rate move.
"Another hike by year-end is pretty much locked in. The BOJ will probably raise rates either in October or December with a close eye on upcoming inflation data," Sakurai said.
He said the central bank could wait until December if inflation rises broadly in line with expectations, as policymakers may want to avoid disrupting financial markets or fueling concerns about asset-price bubbles.
However, if inflation accelerates more rapidly than anticipated, the BOJ could move as early as October and potentially deliver another increase before the fiscal year ends in March.
"Corporate profit is strong, and the labor market is tight, so that inflationary risk will outweigh the risk of economic downturn," he said. "If so, the BOJ will maintain its focus on combating inflation."
Sakurai expects Japan's policy rate to eventually rise to around two percent by early 2028, when Governor Kazuo Ueda's current term concludes.
The BOJ's policy decisions have become more complicated due to the conflict in the Middle East, which has driven up energy costs and heightened inflationary pressures in Japan, a country heavily dependent on imported fuel. A persistently weak yen has also raised import costs and contributed to higher prices.
Still, Sakurai argued that neither higher interest rates nor currency intervention is likely to reverse the yen's weakness.
Instead, he pointed to investor concerns over Prime Minister Sanae Takaichi's expansionary fiscal policies, including major spending plans and subsidies aimed at reducing fuel costs.
Japan has already approved an additional budget worth 3 trillion yen (US$18.6 billion), funded through extra debt issuance.
"The problem with Japan is a lack of consistency between the BOJ's efforts to tame inflation and expansionary fiscal policy that works to fuel inflation," Sakurai said. "Unless this is fixed, there is no way out of Japan's weak-yen problem."
