BOJ set to lift rates to 1.5 percent, former policymaker predicts
A former Bank of Japan board member says the central bank will likely raise its policy rate several more times to reach roughly 1.5 percent during Governor Kazuo Ueda’s remaining term, a projection that would mark a decisive move away from decades of ultra low rates. The outlook matters for borrowers, markets and Tokyo’s fiscal calculus as officials weigh wage growth, persistent inflation and a weak yen against political and operational constraints.
Makoto Sakurai, a former Bank of Japan board member, told Reuters on Dec. 22, 2025 that he expects the central bank to press on with further increases in its short term policy rate, likely lifting it to roughly 1.5 percent through Governor Kazuo Ueda’s remaining term, which runs to early 2028. Sakurai said the bank “won’t say so publicly” but that policymakers probably view the neutral rate near 1.75 percent, leaving scope to cut if conditions later require.
The projection follows a mid December policy meeting in which the BOJ raised its policy rate by 25 basis points to 0.75 percent, a move announced on a Friday and described by officials as part of a gradual withdrawal of extraordinary stimulus. The bank’s policy statement said it would continue to raise the policy rate if the economy and prices move in line with its forecasts. Governor Ueda stressed that loose policy would still support the recovery and said real interest rates are expected to remain “significantly low”.
Views within and around the BOJ remain divergent but overlapping on the eventual policy path. Kiuchi Takahide, a former BOJ policy board member and now executive economist at Nomura Research Institute, characterised the December decision as an exit from monetary easing rather than outright tightening and suggested the bank will raise rates in stages through 2027 toward about 1.25 percent, contingent on wage dynamics. BOJ board member Junko Koeda has argued publicly for continued normalisation to bring real rates back toward equilibrium, pointing to a near zero output gap and tight labour markets as justification for further adjustment.
Market reaction to the December move was muted, reflecting that investors had largely priced in the lift. The yen did not strengthen materially and many economists expect at least one more hike next year that could take the benchmark to roughly one to 1.25 percent. Some forecasters caution the bank will need time, perhaps six months, to assess the economic impact of higher rates before moving again.
Key drivers for further tightening include inflation that has persistently run at or above the BOJ’s 2 percent target, nascent but uneven wage gains, and a weak yen that raises import costs. Sakurai linked the scope for additional tightening to a strong external backdrop, saying solid U.S. growth would underpin Japan’s economy and allow the BOJ more room to normalise.
Political and market constraints remain important. Sakurai said the BOJ likely secured tacit consent from Prime Minister Sanae Takaichi and Finance Minister Satsuki Katayama for normalisation, but warned that moving rates closer to neutral could complicate fiscal financing and political support given the government’s preference for lower inflation and affordable borrowing costs.
If policymakers follow the path Sakurai outlines, the shift would mark a clear break from decades of near zero or negative interest rates and would have substantial implications for borrowers, asset prices and public debt servicing, while leaving the bank prepared to pivot if growth or inflation weaken. The timing of further moves will hinge on wage settlements, inflation persistence and external growth over the next year.
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