BOJ Predicted to Gradually Raise Interest Rates to 1.5%

Multiple Rate Hikes Expected by 2028

The Bank of Japan is anticipated to continue its monetary policy normalization by raising interest rates three more times to reach 1.5% before Governor Kazuo Ueda's term ends in early 2028. According to Makoto Sakurai, former BOJ board member, the first hike to 1% could materialize as early as June or July 2025, contingent upon the strength of the US economy and domestic developments in wages and prices.

Challenges in Further Rate Hikes

While the initial hike is seen as relatively certain, subsequent rate increases are expected to be more challenging. Higher rates would bring borrowing costs closer to what is considered a neutral level for the economy, potentially drawing criticism from dovish policymakers like Sanae Takaichi, an advisor to Japan's Prime Minister. Sakurai suggests that while BOJ might view 1.75% as a potential neutral rate, reaching 1.5% would still provide ample room for future rate cuts if needed.

Implications for Monetary Policy

The predicted rate hikes signify BOJ's gradual move towards policy normalization after years of ultra-loose monetary stance. This shift reflects growing confidence in Japan's economic recovery and inflation outlook. The BOJ's cautious approach balances the need to support economic growth while managing potential market reactions to rate changes.