Former BOJ Review Committee Member: The Bank of Japan May Raise Rates Before July, Core Inflation Has Reached the 2% Target

Summary: Seiji Ando, a former member of the BOJ Policy Board, said the Bank of Japan may raise interest rates before July due to higher oil costs caused by the war in the Middle East, with core inflation already reaching 2%. He believes rates should be raised to about 1.25% as soon as possible, but the probability of a rate hike in April is only 50%.

Gate News: On April 7, former BOJ Policy Board member Seiji Ando said on Tuesday that the Bank of Japan is very likely to raise interest rates before July, as oil costs have surged due to the war in the Middle East, increasing the risk that the central bank will fall behind the curve in responding to growing inflation pressures. Ando noted that core inflation has reached the BOJ’s 2% target. The latest Tankan survey showed that companies’ five-year inflation expectations reached 2.5% last week. He said that the surge in oil prices and supply constraints caused by the Iran war provide further justification for the BOJ to raise its short-term policy interest rate soon from its current level of 0.75%.

Ando said, “The Bank of Japan should raise interest rates to a level that is neutral for the economy as soon as possible,” adding that Japan’s neutral interest rate may be around 1.25%. However, he also said that the likelihood of a rate hike in April is “50%,” because the Iran war keeps markets volatile and makes Japan’s fragile economic outlook unclear.

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