A former Bank of Japan executive board member, Masaaki Kaizuka, indicated that the central bank may raise its benchmark interest rate this month to prevent falling behind in managing inflation. In an interview on Wednesday, Kaizuka remarked, "If I were the BOJ governor, I would say now is the time to act. Conflict is driving up inflationary pressures in the economy, and if inflation expectations truly begin to surge, it raises the risk of the economy falling behind." Although news of a temporary ceasefire in the Middle East initially caused oil prices to drop and global financial markets to rally, crude prices are expected to remain elevated, which will continue to pressure costs throughout the economy.
Market observers are watching to see whether Governor Kazuo Ueda will send clear signals about a potential rate decision ahead of the April 28 policy announcement, similar to the communication strategy employed before the rate hike in December. Kaizuka, who left the BOJ in 2024, noted that recent economic indicators released by the central bank suggest a readiness to raise rates. He added that despite heightened Middle East tensions and a spike in oil prices, the BOJ did not downgrade its economic assessment earlier this week.
Late last month, the Bank of Japan released updated data showing that price increases are nearing the central bank's 2% target. The BOJ also recalculated the output gap, which now shows it has been positive since 2022—a notable shift from earlier estimates indicating a negative output gap for more than five consecutive years. "Anyone paying attention to these indicators would get the impression that they are clearly preparing for something," Kaizuka said, referring to the release of the new data. "It appears very likely they will take action this time."
In December, Governor Ueda stated that the BOJ would weigh the pros and cons of raising rates at its meetings, a comment widely interpreted as signaling an impending rate hike. Ueda's next public speech is scheduled for next Monday. Nevertheless, uncertainty remains, as actions by former U.S. President Donald Trump could abruptly alter the global economic outlook. Japanese Prime Minister Sanae Takaichi emphasized the importance of reaching a lasting peace agreement in a Wednesday call with Iranian President Masoud Pezeshkian.
"If Trump makes an ill-advised move the day before the policy meeting, everything could fall apart," Kaizuka said, referring to the possibility that a planned rate hike could be called off at the last minute. "The BOJ may not explicitly mention it in its outlook report, but 'Trump risk' is likely the biggest risk factor for Japan's economy."
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