Former Bank of Japan policy board member Sakurai Makoto said Thursday that the central bank is likely to raise interest rates roughly every three months, lifting its benchmark rate to 2% by around June next year, as it contends with intensifying inflationary pressures. He noted that with September's hike to 1.25% — the highest level in 31 years — the BOJ's policy focus has shifted, with growing emphasis on tackling broadening price increases driven by surging fuel costs.

Sakurai said government data shows Japan's crude oil import costs have soared roughly 70% to 80% in recent months compared with levels before U.S. action against Iran in February, which he said will push consumer inflation higher in the coming period. He also pointed to a weak yen and robust artificial intelligence-related demand as factors boosting profits at manufacturers, thereby underpinning the economy and fueling demand-driven price pressures.

Sakurai stated that the BOJ is fully aware of such price pressures, which has prompted a fundamental shift in its approach to inflation. He projected consumer inflation could exceed 3% between late this year and early next year, forcing the central bank to step up its tightening pace to prevent underlying inflation from overshooting its 2% target.

"Combined with Treasury Secretary Bessent's support for higher rates, the BOJ may be more confident it can accelerate the pace of rate increases and will act in the future," said Sakurai, who maintains close ties with current policymakers. He indicated the BOJ is likely to revise up its inflation forecasts in the quarterly outlook report due in October and stands a strong chance of raising rates again in December.

Sakurai added that if the price forecast revisions are substantial, the BOJ could opt for an October move rather than waiting until December. After an expected hike to 1.5% by year-end, he predicted the BOJ could raise rates to 1.75% in the first quarter of 2027 and reach 2% by June next year. He added that while the terminal rate is projected around 2%, it could prove higher if inflation remains elevated at roughly 3%.

The BOJ raised its rate to 1.25% last week, with Governor Ueda Kazuo signaling the central bank has entered a new phase aimed at preventing inflation from exceeding its target, leaving the door open for further hikes. However, the yen weakened as investors viewed the BOJ's communication as insufficiently hawkish, focusing instead on two dissenters with dovish leanings — seen as a sign that the pace of policy tightening is inadequate to narrow the vast interest rate gap between Japan and the U.S.

Sakurai said while the two dovish dissenters are unlikely to obstruct further BOJ rate hikes, even an accelerated pace would struggle to provide strong support for the yen. He noted that investors will continue selling the yen and Japanese government bonds given expectations that Prime Minister Takaichi Sanae will maintain expansionary fiscal policies.

"The yen won't rebound unless Takaichi's fiscal policy changes," Sakurai said. "Even if the BOJ hikes rates significantly, it will at best delay the yen's decline."