Former Bank of Japan official: Rate hike may occur as early as next month, with a potential increase of 1% in this cycle

According to the Zhitong Finance APP, a former member of the Bank of Japan's committee stated that the Bank of Japan may raise its benchmark interest rate as early as next month, further intensifying market speculation about imminent action. Former Japanese central bank official Makoto Sakurai said in an interview on Wednesday that the Bank of Japan might take action in October, and this decision will largely depend on the authorities' confidence in the evidence they seek for action, as the economic data at that time may be relatively strong due to the delayed effects of tariffs.

Market expectations for the central bank to raise interest rates during its next policy meeting on October 30 are continuously strengthening, as inflation levels remain stable and the economy shows strong resilience, even as U.S. trade policies impact global trade. Given the high level of uncertainty, he also stated that it cannot be ruled out that officials may wait until December to make a more definitive judgment to confirm the impact of tariff policies.

After some insiders indicated earlier this month that Bank of Japan officials believe there may be another rate hike in 2025, the money market has increased its bets on a rate hike by the end of the year. These bets were further strengthened after the Bank of Japan maintained its hawkish policy stance last week.

The Bank of Japan committee's policy vote on September 19 surprised analysts. This was the first time during Governor Kazuo Ueda's tenure that two members opposed maintaining the interest rate at its current level. Makoto Sakurai stated that these votes may be intended to signal an impending policy shift.

The two dissenting members—Naoki Tamura and Hajime Takata—based their voting decisions primarily on the severity of inflation. Makoto Sakurai expressed some difficulty in understanding this reasoning, as the inflation rate has remained at or above the Bank of Japan's target level for three consecutive years.

These dissenters could have taken similar action in June and provided the same explanation. Makoto Sakurai indicated that this suggests the vote may be part of a unified signal from the committee; if the Bank of Japan were solely focused on inflation, they could raise interest rates at any time. Makoto Sakurai left the central bank in 2021.

Makoto Sakurai noted that there is an uncertain factor in the direction of the Bank of Japan's policy, which is the outcome of the ruling Liberal Democratic Party leadership election on October 4. If popular candidate Sanae Takaichi wins, the authorities may have to delay raising interest rates. He stated that Takaichi is viewed as a supporter of monetary easing, although her dovish remarks this year have softened compared to her statements during last year's prime ministerial campaign.

In a debate on Wednesday with four other competitors, Sanae Takaichi indicated that she has softened her policy stance, stating that the implementation of monetary policy should be the responsibility of the Bank of Japan, while the government should determine the direction of fiscal and monetary policy. A year ago, she described raising interest rates as an absurd move Ultimately, Makoto Sakurai believes that before Kazuo Ueda's term ends in April 2028, the Bank of Japan's policy interest rate may be raised by 100 basis points from the current 0.5% over the next two and a half years. According to a survey, this expectation is slightly higher than the market's general expectation of the current cycle's peak rate of 1.25%.

Sakurai stated, "The Bank of Japan may want to stabilize its interest rate at around 1.5%, and it seems certain to reach the level of 1.25%."