A former Bank of Japan economist expects the central bank to raise interest rates again in December and continue increasing borrowing costs next year, potentially taking its policy rate to 2%. Seisaku Kameda, now an economist at Sompo Institute Plus, told Reuters that persistent inflation pressures could prompt the Bank of Japan (BOJ) to continue tightening monetary policy.
Kameda expects the BOJ could lift its policy rate to 1.5% in December, then raise it at roughly quarterly intervals until reaching a “terminal” rate of 2%. That is his forecast, not a decision announced by the central bank. The BOJ’s next policy meeting is scheduled for December 17–18, and its actual decision will depend on the economic and financial conditions it assesses at that time.
The outlook comes as Japan contends with higher energy costs and import-price pressure linked partly to a weak yen. When imported goods and fuel become more expensive, businesses may pass some of those costs on to consumers. Kameda expects consumer inflation to accelerate in coming months as firms pass on costs, including for food products.
The BOJ has already raised rates in June and September, after a period in which increases were less frequent. It kept rates unchanged at its October meeting, while signalling that it remained alert to inflation risks. Kameda said the central bank had shifted toward preparing the ground for more regular increases, although he also noted that market instability could affect the timetable.
A sharp fall in global markets is one possible complication. Japanese stocks tumbled on Friday amid a wider sell-off in technology shares. Kameda said that a rate hike could be delayed if volatility continues into the BOJ’s December meeting. He also described a more severe scenario in which a full-scale collapse in the AI boom damages US growth and spills over into Japan’s economy.
That distinction matters because interest-rate decisions balance inflation against economic activity. Higher rates can help restrain price pressures, but they also increase borrowing costs for households and companies. A sudden downturn in demand could make additional tightening harder to justify, even if inflation remains above the BOJ’s comfort level.
Kameda’s view is that Japan’s economy could withstand further increases, supported by corporate profits and a planned sales-tax cut on food items. Those are his assessments, not guaranteed outcomes. Companies differ in their ability to absorb higher financing costs, and households may respond differently depending on wages, prices and debt levels.
The BOJ has spent years trying to move away from a prolonged period of weak price growth and deflation. That history has made policymakers cautious about declaring that inflation is sustainably established. Kameda argued that some indicators had reached the BOJ’s 2% target earlier than the bank’s October assessment suggested, but the central bank must judge whether price increases are broad-based and durable.
For markets, the key issue is not just whether the BOJ raises rates in December, but how quickly it expects to move afterward. A clear path could affect the yen, bond yields and borrowing costs. A slower or more conditional approach could signal that officials are prioritising flexibility as risks change.
The December meeting will provide the next official indication of the BOJ’s thinking. Until then, Kameda’s forecast offers one informed perspective on where policy could go, while market volatility, energy prices and Japan’s inflation data remain important uncertainties.