MNI INTERVIEW: Ex-BOJ's Sekine Sees Potential March Rate Hike

A Bank of Japan rate hike in March remains feasible as real interest rates remain low and the risk of falling behind the curve persists, former BOJ chief economist Toshitaka Sekine told MNI on Friday.

“If nothing goes wrong, it would not be unusual for the BOJ to raise the policy rate in March,” said Sekine, now a professor at the School of International and Public Policy at Hitotsubashi University.

Services prices and wages are gradually rising, reinforcing the view that Japan is progressing toward its 2% price target in a stable, sustainable manner, he noted, paving the way for the BOJ to raise the policy rate 25 basis points to 1%.

Governor Kazuo Ueda does not follow a fixed schedule for rate hikes, instead taking an “opportunistic” approach, Sekine argued, noting the risk of falling behind the curve has not yet materialized, but persists as the current policy rate remains low relative to real interest rates and Taylor-rule estimates.

“The BOJ will raise rates quickly if economic and financial conditions warrant it,” Sekine said. “I personally think the appropriate policy rate could be around 2%, as the natural rate of interest may be slightly higher.” However, he cautioned that the BOJ will need to evaluate the impact of higher borrowing costs on economic activity and prices carefully after raising the policy rate to 1%.

Sekine also highlighted the foreign exchange rate as an important factor affecting inflation, though he noted it is “not the most important factor.” While recent increases in import prices have moderated, a weaker yen could push up import costs and inflation.

Sekine accurately called the BOJ's December hike in October 2025. (See MNI INTERVIEW: BOJ Dec Hike Possible - Ex-Chief Economist)

He criticized private economists who argue that the BOJ should clarify the natural rate of interest and underlying CPI inflation. “It is incorrect to criticize the BOJ for this. The Bank clearly outlines its methodology and acknowledges that it cannot pin down these figures exactly. Private economists should calculate them themselves, that is part of their professional responsibility,” he said.

PM TAKAICHI

Sekine said market participants remain skeptical of Prime Minister Sanae Takaichi’s economic policies, with selling pressure on the yen and JGBs sending a strong signal regarding fiscal confidence.

“I think Prime Minister Takaichi understands these market pressures and will consider them when managing economic policy,” Sekine said. He added that if market concerns intensify following Sunday’s election results, Takaichi is likely to respond firmly, as she did in December. “She is neither dovish nor reckless, contrary to what some market participants may imagine.”

Sekine noted that the recent rapid rise in long-term interest rates is largely due to fiscal concerns, but stressed that a 10-year JGB yield above 2% is not unusually high.