Former Bank of Japan official: The central bank may accelerate rate hikes, raising rates once each in September, December, and April next year

(1) Former Bank of Japan official and Oxford Economics economist Shigeto Nagai expects the Bank of Japan to raise interest rates in September and December this year, and again in April 2027, bringing the policy rate up to 1.75%. The previous forecast had called for a hike in December and another in June 2027, indicating a significantly faster pace. (2) Nagai believes the policy rate is unlikely to reach the market-implied terminal rate of just above 2%, and therefore expects the 10-year Japanese government bond yield to only touch 3%, rather than climb further. (3) The main reason for this adjustment is that the Bank of Japan aims to address the depreciation pressure on the yen and the rise in inflation expectations, showing that exchange rates and inflation have become the central factors in the bank’s accelerated tightening.