Rate Hike Countdown for October? Former BOJ Board Member Says “Inflation-Focused BOJ Can Act at Any Time”

TradingKey - Following the two dissenting votes at the September Bank of Japan (BOJ) meeting and a slightly hawkish tone from BOJ Governor Kazuo Ueda, a former BOJ board member has now publicly backed a potential October rate hike — the second increase in 2025 — signaling that Japan’s push toward monetary policy normalization is accelerating.

On Wednesday, September 24, Makoto Sakurai, a former nine-member BOJ board member, said the central bank could raise interest rates in October. The decision will largely depend on how confident policymakers are about meeting their conditions for tightening, but economic data by then is expected to be relatively strong — partly because the impact of U.S. tariffs on Japan has been delayed.

The BOJ has been seeking sustained inflation and wage growth to justify further rate hikes. However, concerns over the negative spillover from U.S. trade policies have so far held back its tightening momentum.

Sakurai expressed puzzlement over the BOJ’s decision to hold rates steady for several months, noting that Japan’s inflation rate has remained at or above the BOJ’s 2% target for over three years.

“The BOJ can raise rates anytime it wants if they only look at inflation,” he said.

He acknowledged, however, that uncertainty around the global impact of U.S. tariffs remains high, and policymakers may prefer to wait until December, when the effects are clearer, before acting.

Earlier in September, the U.S. and Japan signed a U.S.-Japan Trade Agreement. While the U.S. reduced tariffs on Japanese auto imports from 27.5% to 15%, some analysts still believe tariff increases could hurt Japan’s export-driven economy.

At last week’s September policy meeting, the BOJ sent modest signals of a faster tightening path. Board members Naoki Tamura and Hajime Takata cast dissenting votes against holding rates steady — a rare move indicating rising hawkish pressure within the committee.

Governor Kazuo Ueda also struck a slightly hawkish tone in his post-meeting remarks, stating that U.S. tariffs have not yet significantly impacted the Japanese economy. 

He said consumer activity is somewhat weak but remains resilient. Additionally, the BOJ’s continued sales of ETFs and REITs mark another step toward normalizing monetary policy.

According to Thursday’s release of the July BOJ meeting minutes, some members urged the bank not to be overly cautious and risk missing the window for rate hikes. Among several members calling for timely tightening, one suggested that if the impact of U.S. tariffs proves limited, the BOJ could see room for another hike before year-end.

The upcoming Liberal Democratic Party (LDP) leadership election is another key factor influencing the BOJ’s future policy path. Top contender Sanae Takaichi has historically favored loose monetary policy. 

However, Sakurai noted that Takaichi’s recent statements this year have been less dovish compared to her past rhetoric.

Looking ahead, Sakurai expects that under Governor Ueda — whose term ends in April 2028 — the BOJ could raise its policy rate from the current 0.5% to as high as 1.50% within the next two and a half years. His forecast of a 100-basis-point cumulative hike is more hawkish than the market consensus of 75 bps.