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2026-04-07 13:56:57
[Former Bank of Japan Policy Board Member: Bank of Japan May Raise Interest Rates Before July] (1) Former Bank of Japan policy board member Seiji Adachi stated that the Middle East war has led to a surge in oil prices, exacerbating the risk that the central bank will "lag behind the situation" in dealing with inflation, and therefore it is very likely that interest rates will be raised before July. The underlying inflation rate has reached the 2% target, and corporate five-year inflation expectations have risen to 2.5%. The surge in oil prices and supply bottlenecks have increased the rationale for raising the short-term policy rate (currently 0.75%) as soon as possible. (2) Adachi said that the central bank should raise interest rates to a level neutral to the economy (about 1.25%) as soon as possible. However, due to the market turmoil caused by the war and the fragile economic outlook, the possibility of raising interest rates in April is "50/50". The central bank may plan to raise interest rates twice this year to reach a neutral level. (3) Political factors may complicate the decision-making: Dovish Prime Minister Sanae Takaichi appointed two inflation advocates to the policy board, and the government opposes raising interest rates in the near future. If the Middle East war evolves into a protracted oil shock (lasting more than a year), central banks may need to accelerate the pace of interest rate hikes to bring real borrowing costs out of negative territory, at which point they will face a difficult choice between rising inflation and low growth.
