MNI INTERVIEW: BOJ Dec Hike Needed To Support Yen - Sakurai

The Bank of Japan should raise its policy rate 25 basis points to 0.75% a the Dec 18-19 meeting, as delaying a move would undermine its independence and risk further yen depreciation amid pressure from U.S. funds, former board member Makoto Sakurai told MNI.

“The December meeting is a critical moment. If the Bank refrains from raising the policy rate, the yen will depreciate sharply due to selling pressure from U.S. funds,” Sakurai said, adding that those U.S. investors believe the BOJ has little choice but to hike in December.

Failure to do so could call the BOJ’s independence into question, much like the U.S. Federal Reserve under pressure from President Donald Trump, he warned, noting Prime Minister Sanae Takaichi’s dovish fiscal-monetary stance. 

U.S. Treasury Secretary Scott Bessent could use the opportunity to press Japan for policy changes, having previously criticised the BOJ for moving too slowly to address inflation risks, Sakurai added.

Sakurai also called for a December hike in August, bringing forward his previous forecast of an April 2026 increase amid easing trade tensions with Washington. (See MNI INTERVIEW: Ex-BOJ Sakurai Sees Rate Hike As Early As Dec) Markets have priced in a 49.8% chance of a hike next month. 

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Sakurai, who maintains close contact with BOJ officials since leaving the board in 2021, said Takaichi’s dovishness also weighed on the bank's decisions. “The BOJ might have raised the rate in October if the prime minister wasn’t Takaichi,” he said, adding that concern over government reaction likely contributed to the bank’s decision to stay on hold last month. (See MNI BOJ WATCH: Ueda Hints Bank Close To Hike; Wages Key)

He said Governor Kazuo Ueda’s recent comments – that downside risks to the U.S. economy have eased and the likelihood of achieving the BOJ’s price outlook is rising – suggest a rate hike is likely either in December or January.

While Sakurai backed the BOJ’s cautious pace amid uncertainty over the impact of trade policy on the U.S. and Japanese economies, he argued Japan will not return to deflation even if the rate rises to 0.75%, which remains well below the neutral level. He expects the BOJ could raise rates twice a year, eventually reaching 1.25-1.50%, assuming the global economy remains stable.

Communication with the government and markets will be crucial, he warned. “Prime Minister Takaichi may oppose a December rate hike, but she needs to understand that government pressure to delay could worsen relations between Takaichi and Trump,” he said.

Sakurai also pointed to continued weakness in real wages – down for the ninth consecutive month in September – as one reason for the government’s caution. However, he stressed that achieving positive real wage growth is not a prerequisite for policy tightening, even if the BOJ had earlier expected real wages to turn positive by autumn.