BOJ still likely to raise interest rates further with target of 1.50%, says ex-policymaker

• The next rate hike to 1.00% could come around June or July next year
• But that would be dependent on the strength of the economy, as well as wage and price developments
• Further rate hikes after that could become more challenging though
• That as it would bring borrowing costs closer to the neutral rate, which has not yet been specified
• In doing so, that will continue to draw the ire and criticism from Japan prime minister Takaichi
• BOJ won’t say so publicly but probably sees 1.75% as the estimated neutral rate level
• A rate hike to 1.50% would be comfortably below that level, and still leave the BOJ enough room to cut rates if needed
• Possibly two rate hikes to follow in the next fiscal year
• That is if the US economy holds up and underpins the Japanese economy and domestic inflation remains above the central bank’s 2% target
• But if economic uncertainty heightens, BOJ could opt to hike rates just once in the next fiscal year and delay further rate hikes to 2027
• “BOJ probably wants to ‌resume rate hikes at a pace of about once ‍every six months, but worried about the risk of facing pushback from Takaichi’s administration”
• “That may have been behind Ueda’s ambiguous communication”

In the interview mentioned, Sakurai is said to retain “close contact” with incumbent policymakers. So, just keep that in mind when reading into the above. But as mentioned before, the BOJ won’t be explicit in trying to push forward with the next rate hike.

Ueda left the door open for that option but didn’t necessarily outline that they would take that next step following the spring wage negotiations next March.

It’s going to be a meeting-by-meeting basis as per before but just be wary that the threshold now is much, much higher as the central bank has to deal with potential backlash and pressure from Takaichi now as well.