Former BOJ Policy Board Member: Due to increased price pressures, the central bank may raise interest rates before July

Seiji Adachi, a former policy board member of the Bank of Japan, said on Tuesday that the Bank of Japan is likely to raise interest rates before July, as the war in the Middle East has caused oil costs to soar, increasing the risk of the central bank falling behind the curve in addressing rising inflation pressures. Adachi stated that the core inflation rate has reached the central bank's target of 2%, and last week's Tankan survey showed that companies' five-year inflation expectations have reached 2.5%.

He noted that the surge in oil prices and supply constraints caused by the war in Iran provide more reasons for the central bank to quickly raise its short-term policy rate from the current 0.75%. He stated, "The Bank of Japan should raise interest rates to a neutral level for the economy as soon as possible," adding that Japan's neutral interest rate may be around 1.25%. However, Adachi mentioned that the likelihood of a rate hike in April is "50%" because the war in Iran keeps the market volatile and obscures Japan's fragile economic outlook.

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