Former BOJ Board Member Expects Rate Hikes in September and Next January

▲ Bank of Japan

The Bank of Japan (BOJ) is expected to raise its benchmark interest rate next month and potentially implement another hike as early as January next year, former BOJ board member Seiji Adachi predicted on the 24th.

In the Tokyo market today, traders are pricing in about an 80% probability of a rate hike at the BOJ's monetary policy meeting scheduled for September 18.

Adachi, who previously participated in the BOJ policy meetings as a board member, said in an interview with Bloomberg that "the BOJ is effectively backed into a corner."

"Markets have almost fully priced in a rate hike," he said, adding that "if rates are not raised, the yen could resume its sharp depreciation."

The yen has been trading around 159.20 per dollar, nearing the psychological resistance level of 160.

U.S. Treasury Secretary Scott Bessent has been pressuring BOJ Governor Kazuo Ueda to raise rates, stating that policy actions are necessary following joint U.S.-Japan market interventions.

Adachi noted that these remarks from Bessent provide Governor Ueda with a "good opportunity," making it difficult for the economic growth-prioritizing government of Sanae Takaichi to oppose rate hikes.

"Bessent has repeatedly signaled that the BOJ is next in line," Adachi added. "Under these circumstances, the government would not be able to tell the BOJ to stop."

Citing strong inflation in Japan, he projected that the BOJ is highly likely to pursue an additional rate hike in January next year following the September increase.

"My sense is that the BOJ will move again in January next year," he said, adding that "the possibility has grown significantly that it will surpass the 1.25% to 1.5% level previously considered the endpoint of the rate-hike cycle."

He also mentioned that a simple application of the Taylor rule, which calculates the optimal interest rate level, suggests rates may need to rise to around 2.75%, noting that the policy rate could reach 2% or slightly higher by the end of next year.

However, he pointed to sluggish consumer spending as a key risk factor.

According to data released earlier this month, personal consumption for the April-June period declined 0.1% from the same period a year earlier, despite temporary factors such as front-loaded demand for air conditioners ahead of regulatory changes.

"Consumer spending lacks momentum," Adachi said. "The key question is whether the BOJ can continue aggressive rate hikes if consumption remains sluggish in the wake of inflation and rising interest rates."

(Photo: Yonhap News)

※