The Bank of Japan may continue raising rates, with the terminal rate seen at 1.5%.

Hideo Hayakawa, former executive director of the Bank of Japan, recently stated that the central bank may continue to raise the benchmark interest rate beyond current market expectations, predicting two more hikes this year following the increase in January. Hayakawa believes there is no sufficient reason to think the Bank of Japan will stop raising rates soon. He also pointed out that, according to his assessment, the terminal rate of this cycle by the Bank of Japan is expected to reach around 1.5%, which is higher than most analysts' expectations but aligns with the International Broker Detectorry Fund's (IMF) forecast.

Hayakawa's remarks come as the market focuses on the potential pace of the Bank of Japan's policy normalization. On January 24, the Bank of Japan raised its key policy rate to 0.5%, the highest level in 17 years. He predicts the next rate hike might occur in July, with another possible increase by the end of the year. Hayakawa also emphasized that the Bank of Japan's expected nominal neutral rate range is 1%-2.5%. A Bloomberg survey last week showed that private sector economists' median expectation for the terminal rate is 1%.

He also mentioned, "They will first reach a 1% interest rate." He believes it is a misconception that the market generally thinks the Bank of Japan will stop at the low end of this range, but in fact, the central bank will continue to raise rates gradually and cautiously beyond 1%. Hayakawa further noted that although the Federal Reserve's pause in rate hikes provides greater policy flexibility for the Bank of Japan, the impact of U.S. President Trump's policies remains unpredictable and may affect the pace of rate hikes by the Bank of Japan.

The market will continue to monitor the Bank of Japan's rate hike plans, especially in the context of global economic and geopolitical uncertainties. The movement of the yen might also influence central bank policy.

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