A former Bank of Japan policy board member, Makoto Sakurai, has indicated that the central bank could raise interest rates as early as March if the yen resumes its decline before the scheduled Japan-U.S. summit this month. Prime Minister Takaichi Sanae is expected to visit Washington around the time of the BOJ's next policy meeting on March 18-19 for talks with U.S. President Donald Trump.

In an interview on Friday, Sakurai suggested that Takaichi might seek assistance from the BOJ to curb yen depreciation. He noted that Washington's recent currency rate checks to support the yen indicate a U.S. preference for a stronger yen relative to the dollar. "Currency intervention has only a temporary effect in countering yen selling pressure. The best way to address yen weakness is for the BOJ to hike rates," Sakurai stated, adding that he maintains close contact with current policymakers.

Sakurai explained that a further slide in the yen would increase inflation via higher import costs, partially offsetting the downward pressure from government fuel subsidies. He added that if necessary to respond to a sharp yen drop, the BOJ could justify a rate hike as early as March by pointing to prospects for strong wage growth in the upcoming annual spring wage negotiations between companies and unions. "Waiting until April would make more sense, but depending on yen movements, there is a possibility of a March rate hike," Sakurai said.

Sakurai served on the BOJ board from 2016 to 2021, a period when the bank shifted its policy focus from massive asset purchases to controlling long-term interest rates through yield curve control. He projected that the BOJ may need to raise rates twice each in 2026 and 2027 to push the policy rate—currently at 0.75%—up to 1.75%, a level he considers neutral for the economy. He cautioned that moving too quickly could shock Japan's banking system by increasing bankruptcies among small firms and damaging regional banks' balance sheets.

The BOJ ended its decade-long massive stimulus program in 2024 and has raised rates multiple times, including a December hike that brought the short-term policy rate to a 30-year high of 0.75%. With inflation exceeding the BOJ's 2% target for nearly four years, Governor Kazuo Ueda has signaled readiness to continue hiking if economic forecasts are met. Most economists surveyed expect the BOJ to raise rates to 1% by the end of June, while markets price in about a 70% chance of a hike by April.

The BOJ's next policy meeting is scheduled for March 18-19, followed by a meeting on April 27-28, when new quarterly growth and inflation projections will be released. Yen weakness has become a political challenge for Japanese policymakers, as it hurts households and retailers by raising costs of imported fuel and food. Since Takaichi, seen as fiscally and monetarily dovish, became prime minister in October, the yen has depreciated about 8% against the dollar, hitting an 18-month low of 159.45 in January. Although it has since recovered some ground, the yen remains near 155—well below the 147 level seen before Takaichi took office.