Former Bank of Japan (BOJ) board member Makoto Sakurai suggests that the central bank may implement another interest rate hike in 2025, potentially in April or June, raising the short-term rate from the current 0.5% to 0.75%. Following this increase, the BOJ is expected to pause further hikes due to anticipated economic challenges stemming from U.S. tariff policies.
Sakurai, who maintains close connections with current policymakers, indicates that the BOJ aims to gradually normalize its monetary policy and reduce its substantial balance sheet. However, the economic impact of U.S. President Donald Trump’s tariffs, which include a 25% levy on auto imports and a 24% tariff on other Japanese goods, may necessitate a more cautious approach. These tariffs are projected to significantly affect Japan’s export-driven economy, potentially reducing economic growth by up to 0.8%.
In light of these developments, the BOJ may adjust its strategy, possibly limiting rate hikes to once a year or less, deviating from the initially planned semi-annual increases. The central bank is also likely to lower its economic growth forecast for the current fiscal year to approximately 0.6-0.7%, down from the previous estimate of 1.1%.
Despite these challenges, the BOJ remains committed to its objective of achieving a sustainable 2% inflation target. Deputy Governor Shinichi Uchida has indicated that the central bank will continue to raise interest rates if inflation trends align with this goal.
The BOJ’s next policy meeting is scheduled for April 30-May 1, during which it will update its economic and inflation forecasts through fiscal 2027. This meeting will provide further insights into the central bank’s policy direction amid evolving global economic conditions.
