Japan's "Rate Hike Storm" Coming? Former BOJ Official Predicts Three More Hikes After Next Week

A former Bank of Japan (BOJ) policy board member suggests Governor Kazuo Ueda's tightening path could include up to four rate hikes by 2027, with three additional increases expected following next week's widely anticipated move.

"They likely feel they're already far behind the curve," said former BOJ executive director Hideo Hayakawa in a Wednesday interview. "Ueda may signal this hike won't mark the end of the cycle."

Hayakawa's comments come as markets overwhelmingly expect the BOJ to raise borrowing costs to 0.75% on December 19 - its first move since January. Market focus will center on how the central bank characterizes its future policy trajectory.

"They may return to hiking about every six months," Hayakawa stated, projecting a terminal rate near 1.5% that would require three more hikes after next week's expected action.

Bank of America economist Takayasu Kudo similarly forecast six-month intervals between rate increases in a recent report, anticipating hikes after the BOJ's December 18-19 meeting lifts rates from 0.5% to 0.75%.

"Recent corporate earnings, wage negotiations, yen depreciation and government dialogue increasingly convince the BOJ it can hike this December," Kudo wrote, projecting follow-up hikes in June 2026, then January and July 2027.

A key focus for BOJ watchers will be whether policymakers provide guidance on Japan's neutral rate - currently estimated between 1%-2.5% - which neither stimulates nor restrains the economy. Hayakawa expects updated estimates may narrow this range when the BOJ revises economic projections next January.

Hayakawa, who's known Ueda for 40 years, noted the governor has sent unusually clear signals about next week's decision. Ueda recently stated the BOJ would make appropriate rate decisions while maintaining accommodative conditions, appearing to preempt criticism about policy divergence from government fiscal plans.

"Ueda has practically pre-announced this hike," Hayakawa said, though some argue waiting until January for more wage data would be prudent.

Hayakawa defended the BOJ's delayed action, citing uncontrollable variables like potential Trump tariffs and new Prime Minister Sanae Takaichi's policies. "Trump and Takaichi create waves of uncertainty beyond the BOJ's control - it's truly unfortunate," he said.

The former BOJ chief economist warned Takaichi's expansionary fiscal policies - including last month's larger-than-expected stimulus package - could force faster rate hikes and push terminal rates higher.

"Takaichi is creating massive fiscal debt to stimulate an economy not lacking demand," Hayakawa cautioned. "Her inflation-relief spending may ultimately fuel price pressures instead. Given these risks, Ueda probably feels he's already behind the curve."