Former Bank of Japan Policy Review Committee Member: If the yen depreciates further before the Japan-U.S. summit, the earliest possible interest rate hike could be in March

The Smartkarma Finance APP has learned that Makoto Sakurai, a former Policy Committee member of the Bank of Japan, stated that if the yen resumes its decline before the Japan-U.S. summit scheduled for this month, the Bank of Japan may raise interest rates as early as March.

Prime Minister Sanae Takaichi is expected to visit Washington around the time of the Bank of Japan’s next policy meeting on March 18-19, where she will meet with U.S. President Donald Trump.

Sakurai said in an interview on Friday that Takaichi might seek the Bank of Japan’s help to curb the yen’s depreciation, as the fact that Washington conducted a rate check last month to support the yen indicates a tendency for the yen to strengthen against the dollar.

“Currency intervention has only a temporary effect in countering yen selling pressure. The best way to address a weak yen is for the Bank of Japan to raise interest rates,” Sakurai said. He maintains close contacts with current policymakers.

Sakurai noted that a further decline in the yen would push up inflation through higher import costs and partially offset the downward pressure from government fuel subsidies.

He added that if necessary to respond to a sharp fall in the yen, the Bank of Japan could justify an interest rate hike as early as March by highlighting the prospects of strong wage growth in the upcoming annual spring wage negotiations between companies and labor unions.

“Waiting until April would be more meaningful, but based on the yen’s trend, the Bank of Japan might raise rates in March,” Sakurai said.

Sakurai served as a Policy Committee member of the Bank of Japan from 2016 to 2021, during which the bank shifted its policy focus from large-scale asset purchases to controlling long-term interest rates through bond yield control.

He stated that the Bank of Japan might need to raise interest rates twice in 2026 and 2027 to bring its policy rate (currently at 0.75%) up to 1.75%, which is likely to be a neutral level that neither cools nor overheats the economy.

Sakurai warned that raising rates too quickly could impact Japan’s banking system by increasing bankruptcies among small businesses and damaging the asset-liability positions of regional banks.

The Bank of Japan ended its decade-long large-scale stimulus program in 2024 and has raised interest rates multiple times, including increasing its short-term policy rate to 0.75% in December, the highest in 30 years.

With inflation exceeding the Bank of Japan’s 2% target for nearly four years, Governor Ueda Haruhiko has stated that if the economic outlook remains favorable, the bank is prepared to continue raising rates.

Most economists surveyed expect the Bank of Japan to raise rates to 1% by the end of June, with markets pricing in about a 70% chance of a rate hike before April.

The next policy meeting of the Bank of Japan is scheduled for March 18-19. Its Policy Committee will then hold a meeting on April 27-28, during which new quarterly growth and inflation forecasts will be released.

The yen’s weakness has become a political challenge for Japanese policymakers, as it damages households and retailers by pushing up import costs for fuel and food.

Since Prime Minister Sanae Takaichi, known for her dovish stance on fiscal and monetary policy, took office last October, the yen has depreciated about 8% against the dollar, reaching an 18-month low of 159.45 in January.

Although it has recovered some ground, the yen is currently hovering around 155—far below the 147 level before Takaichi took office.