By Leika Kihara and Takahiko Wada
TOKYO (Reuters) – The Bank of Japan may raise interest rates once more this year then pause, as U.S. President Donald Trump’s tariffs inflict deeper pain on the export-heavy economy, former central bank board member Makoto Sakurai said on Friday.
Keen to continue normalising ultra-loose monetary policy, the BOJ will seek to raise short-term rates to 0.75% from 0.5% either at the next meeting on April 30-May 1 or June, said Sakurai, who retains close contact with incumbent policymakers.
After hiking rates to 0.75%, however, the BOJ may hold off raising rates as data from around autumn this year begins to show evidence of the damage Trump’s tariffs inflict on Japan’s fragile economy, he said.
Instead of the initially eyed pace of twice a year, the BOJ will only be able to hike once a year, or even less, given the magnitude of the damage Trump’s tariffs could pose on the global economy, Sakurai said.
“The BOJ’s preference is to keep raising interest rates steadily and reduce its massive balance sheet. But it faces a difficult trade-off as Trump’s tariffs will almost certainly hit the economy hard,” Sakurai told Reuters in an interview.
“The BOJ may hike rates once more by the end of this year, possibly in May or June,” he said. “After that, much will depend on the impact of Trump’s tariffs.”
In new quarterly forecasts due on May 1, the BOJ is likely to cut its economic growth forecast for the current fiscal year to around 0.6-0.7% from the current projection of a 1.1% expansion made in January, Sakurai said.
The terminal rate, or the peak rate of the BOJ’s current rate-hike cycle, may be around 1% rather than the initially estimated 1.5%, Sakurai said.
The timing of the rate hike to 1% from 0.75% is highly uncertain and may take until well towards the end of Ueda’s term in April 2028, he said.
“In the end, the BOJ may feel it’s done enough if it can take short-term rates to 1%,” Sakurai said.
“The economic shock from Trump’s tariffs is like a slowly approaching, huge iceberg. You know it will hit you hard and there is no way to stop it.”
(Reporting by Leika Kihara and Takahiko Wada; Editing by Sam Holmes)
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