A former Bank of Japan (BoJ) board member’s prediction of a June rate hike is solidifying market expectations for further policy normalization in Japan.
Makoto Sakurai, who maintains close contact with incumbent policymakers, recently stated that the BoJ will likely raise its policy rate in June. His voice carries weight because he has consistently outlined a path of multiple rate hikes since late 2025, and his latest call aligns with a noticeable hawkish turn within the central bank.
This growing expectation for a rate hike is primarily driven by three key factors. First, underlying inflation pressures appear strong despite recent data showing a slowdown. While May's Tokyo core CPI (Consumer Price Index) fell below the 2% target, this was largely due to temporary government subsidies for utilities and tuition. Policymakers are looking past this noise, focusing instead on the surge in wholesale prices, which jumped 4.9% in April, and yen-based import prices, which soared 17.5%. This, combined with strong annual wage negotiations (Shunto) resulting in a preliminary 5.26% pay increase, supports the BoJ's goal of achieving sustainable inflation driven by a wage-price spiral.
Second, market dynamics and currency instability are adding to the pressure. The Japanese yen has weakened significantly, with the USD/JPY exchange rate recently breaching the 160 level. This prompted authorities to intervene in the currency market to support the yen. Meanwhile, the yield on 10-year JGBs (Japanese Government Bonds) has surged to a multi-decade high of 2.73%, signaling that investors are already pricing in further rate hikes. Delaying a policy move would only increase the cost of inaction and risk further market instability.
Finally, recent signals from the BoJ and the political environment are paving the way for a hike. The BoJ's April policy meeting revealed a 6-3 vote split, the narrowest under Governor Ueda, indicating growing dissent in favor of tightening. The meeting's summary of opinions later confirmed that several members called for a near-term rate increase. Furthermore, supportive comments from U.S. Treasury Secretary Scott Bessent regarding the BoJ's independence have been interpreted as reducing political hurdles for a June move. With a recent poll showing nearly two-thirds of economists expecting a hike to 1.00%, the consensus is clear: the stage is set for the BoJ to act.
- Hawkish: A term describing a monetary policy stance that favors higher interest rates to control inflation.
- JGB (Japanese Government Bond): Debt securities issued by the Japanese government to raise funds.
- Shunto: The annual spring wage negotiations between Japanese companies and labor unions, which are a key indicator of wage growth trends.