Former chief economist of the Bank of Japan warns: possible rate hike as early as October.

Former Chief Economist of the Bank of Japan, Hideo Hayakawa, said on Monday that if the uncertainty of tariffs diminishes, inflation in Japan is strong enough to prompt the Bank of Japan to consider raising interest rates as early as this autumn. Hayakawa said, "Inflation is clearly strong. Once a decision is made on tariff issues, an interest rate hike could even happen in October." While Hayakawa suggests that a rate hike may come sooner than market consensus, he also agrees with the widely held view that due to ongoing US-Japan tariff negotiations, the Bank of Japan's committee will likely keep the benchmark interest rate unchanged at 0.5% at the end of the month. One of the key challenges facing the Bank of Japan's committee in the upcoming meeting is how to reflect the current strong price trends in quarterly economic forecasts without suddenly causing a reversal in market expectations. Hayakawa believes that the Bank of Japan will not only raise its inflation forecast for this fiscal year, but also for the next fiscal year. He said recent data indicates that companies are shifting costs to consumers, and these actions are no longer one-off decisions made in response to rising raw material costs. Hayakawa said, "The headache is, if the committee increases next year's inflation forecast to 2%, this could be seen as a signal of an impending rate hike. So they may keep the inflation rate expectation below that level." The Bank of Japan's inflation forecast from its latest outlook report released in May predicts core consumer price index to rise 2.2% for this fiscal year ending in March, but only 1.7% for the next 12 months. This forecast allows the Bank of Japan to argue for caution in making rate hike decisions. Insiders revealed that due to unexpected increases in rice and food prices, Bank of Japan officials may consider raising at least one inflation forecast at the policy meeting ending on July 31. Japan's inflation rate has exceeded the Bank of Japan's target for the third consecutive year. Given this reality, Hayakawa believes it is unreasonable to suggest that the core inflation rate remains below 2% - a reason the Bank of Japan has cited for maintaining caution. Although the Bank of Japan remains cautious about price increases, inflation has become a focal point in Japan's upcoming Upper House elections on July 20. There is disagreement between the ruling party and the opposition on whether to provide cash subsidies or tax cuts. Despite lacking actual data, a new quarterly survey released by the Bank of Japan on Monday shows that Japanese citizens generally believe prices rose by 20% in the past year, the highest increase on record. Hayakawa said, "So far, the focus has been on how the government will address inflation, but eventually there may be a debate on whether the Bank of Japan should take action." Bank of Japan Governor Kimitaka Ueda has expressed caution about further rate hikes, citing high uncertainty and potential price trends below the Bank of Japan's target. Hayakawa, who has known Ueda for over forty years, said Ueda must realize that if economic conditions worsen due to further increases in borrowing costs, even if tariffs are the main reason, he could become a scapegoat. Hayakawa said, "If the focus is on inflation, then raising rates sooner would be better. But the Bank of Japan, especially Ueda, must firmly avoid taking such action, as the level of uncertainty in the current economy is already so high."