MNI INTERVIEW: BOJ To Aim For 1.5% Policy Rate - Sakurai

MNI (TOKYO) - The Bank of Japan is likely to take aim at raising its policy rate to 1.5%, which would require five rate hikes every six months until the end of Governor Kazuo Ueda’s term by April 2028, former BOJ board member Makoto Sakurai told MNI, adding that the next move higher was most likely to come at the January meeting. 

BOJ officials have stressed that estimates of the neutral level of interest rates– currently within a range of 1.0% and 2.5% – were challenging to calculate, but this ambiguity is intentional, Sakurai, who continues to retain contact with incumbent policymakers, said in an interview. (See MNI POLICY: BOJ Financial Index At Accommodative Levels)

“It is impossible that policy makers don’t have internal estimates of the appropriate neutral interest rate that they aim to achieve, but they are limited by the top leadership of the bank, including the governor and two deputy governors,” he said.

Sakurai said that in his view it would be optimal for the BOJ to raise rates to as high as 1.75%, which would represent the upper level  of accommodative financial conditions.  

CURRENCY MOVES

Domestic factors, such as the political situation, government economic policy and the degree of wage hikes in fiscal 2025, in addition to sluggish private consumption and real wages, make a December move less likely, Sakurai added. (See MNI INTERVIEW: No BOJ Rate Rise Before Q1 2025 - Sakurai)

However, a depreciation in the yen to between JPY155 and JPY160 could cause political pressure and prompt the bank to consider a hike at the Dec 18-19 meeting, he continued. Bank officials will be satisfied with at least one hike before March 2025, he said. 

Sakurai said that recent yen weakness was caused more by the U.S. presidential election results than by carry trades, which weakened the currency sharply in July.

While the incoming Japanese government’s policies could drive a yen rally, weak economic fundamentals will keep it above JPY130 against the U.S. dollar, he said, noting that a level lower than that and toward JPY120 would not be welcomed by Japanese authorities.

FISCAL IMPACT

While too early for solid predictions, Sakurai estimated the Bank will likely continue its monthly JGB buying at about JPY2.9 trillion after Q1 2026, the last quarter for which the board gave guidance when it decided to lower purchases from JPY5.7 trillion at the July meeting.

The newly-elected government will likely implement large-scale economic stimulus, involving additional bond issuance, to regain public support ahead of the upper house election next summer, which will make further JGB buying reductions more difficult, Sakurai noted.

Bank officials have also found it difficult to form a view of the newly-elected Prime Minister Shigeru Ishiba’s intentions regarding monetary policy, and are uncertain whether these will become any clearer, said Sakurai, noting that Ishiba aired public doubts over the need for an additional rate hike after a meeting with Ueda in early October.