BOJ rate hike in October is real possibility, ex-official says
Faster rate hikes may be in store now as policy focus has shifted, says former executive director
Published Mon, Sep 28, 2026 · 09:23 AM
THE Bank of Japan (BOJ) could raise its benchmark rate for a second straight month when the board meets in October, earlier than many economists expect, according to a former executive director in charge of monetary policy.
“The basic pace will probably be once every three months, but there is also a reasonable chance that the BOJ could raise rates at consecutive meetings,” Kazuo Momma, the former executive director, said in an interview with Bloomberg on Friday (Sep 25).
“I would put that possibility at around 20 per cent to 30 per cent.”
Momma spoke one week after Governor Kazuo Ueda’s board lifted the policy rate three months after an increase in June, marking an acceleration from the previous pace of hiking roughly once every six months.
Ueda explained that the BOJ had entered a new phase, shifting its focus from coaxing underlying inflation higher towards 2 per cent to preventing it from overshooting that target.
Momma said the language was intended to signal to markets that faster rate hikes could be in store now that the policy focus has shifted.
“The BOJ has been stressing quite strongly that there is a risk that underlying inflation could rise above 2 per cent,” Momma said.
“Given that, I do not think that risk will diminish over the next three months. If anything, it is more likely to increase.”
The central bank released price trend data on Friday that supported that assertion. The BOJ’s inflation gauge that excludes fresh food and temporary factors accelerated to a 2.6 per cent gain in August from 2.3 per cent in July.
In addition to upside price risks, Momma said, the BOJ has also emphasised that at 1.25 per cent the benchmark rate is still low.
“Put those two things together, and the most compelling argument right now is that the BOJ should move relatively quickly to raise rates,” said Momma, currently executive economist at Mizuho Research & Technologies.
In Momma’s base case, the BOJ’s policy rate will rise to a terminal rate of around 2 per cent in June or July 2027, meaning the board will likely conduct three more quarter-point increases. The median estimate of economists surveyed by Bloomberg put the terminal rate at 1.75 per cent.
September marked the first time that the BOJ, the US Federal Reserve and the European Central Bank all raised rates in the same month.
Following the September BOJ gathering, the yen weakened despite the rate change after two board members, Toichiro Asada and Ayano Sato, voted against the hike.
The two are the newest members of the board after having been chosen by Prime Minister Sanae Takaichi earlier in 2026. The premier is known for her support of monetary easing.
“I do not know if there will be dissents again, but I do not think they will change the course of BOJ rate hikes,” Momma said.
He said it is unlikely the government will attempt to prevent the BOJ from normalising its policy settings, as doing so could trigger further yen weakness. A weak yen adds to inflationary pressures, as Japan relies heavily on imports to meet its energy and food needs.
Pricing in the overnight swaps market shows that as at Friday afternoon, traders were assigning a 30 per cent chance of a hike at the next decision on Oct 30.
Economists see a slightly slower pace of action. In a Bloomberg survey ahead of the September meeting, January was the most popular pick for a follow-up hike, chosen by 58 per cent of respondents. About 35 per cent saw the BOJ acting again in December. Momma does not agree with the majority view.
“The focus of the debate is really whether the BOJ will conclude that it cannot wait until December to raise rates,” Momma said. “I think the possibility of delaying the next hike until January or later is extremely low.” BLOOMBERG
