(Bloomberg) -- The Bank of Japan may raise its benchmark interest rate as many as three more times this year, with the next move potentially coming as early as June given how much room there is to adjust its “excessively” easy settings, according to a former BOJ chief economist.

“It may sound extreme but it’s fine if it takes place in June,” Toshitaka Sekine, the economist, told Bloomberg in an interview Wednesday, referring to a rate hike. “There’s no need to conclude that there won’t be one.” 

Sekine’s views are more hawkish than those of most BOJ watchers, although an increasing number of analysts have flagged the risk of a July hike as the foundering yen raises the risks of the price trend moving higher. Sekine is of the view that the BOJ will take an opportunistic approach to policy, gradually rolling back its easy settings when possible while real interest rates remain significantly negative.

“My sense is that there is no problem at all even if they raise rates three more times this year, provided conditions are sufficiently favorable,” said Sekine, currently economics professor at Hitotsubashi University in Tokyo. “There is no need to say 0.25% is the limit or the bank will hit a wall if it’s at 0.5%. As long as the environment allows, they can just raise rates gradually.”

In a Bloomberg survey of economists conducted before the April 25-26 policy meeting, the median year-end estimate for the benchmark rate was 0.25%, suggesting most anticipate one more hike after the BOJ conducted its first increase since 2007 in March by lifting its benchmark to a range of 0% to 0.1%. 

Sekine isn’t alone in being more hawkish than the broader market. Vanguard Group Inc. expects the key rate to rise to 0.75% by year-end, and Pacific Investment Management Co. says three quarter-point hikes are in the cards this year.

It’s hard to pinpoint where exactly the neutral rate resides, but if the neutral rate is assumed roughly around 0%, as various estimates suggest, and inflation is 2%, that would mean the nominal neutral rate is around 2%, Sekine said.   

The BOJ’s summary from its April policy gathering indicated the emergence of a hawkish tilt among the nine-member board, with one member saying the rate path may be higher than what the market currently expects. The summary’s release was followed by a decision by the BOJ to cut the amount of its bond buying this week, fueling speculation that the BOJ is preparing for an early move.

The BOJ is probably thinking a higher rate will also be necessary if the yen starts to disrupt the price trend, an outcome more likely to occur than in the past as Japanese businesses have started to change their price-setting behavior to cope with inflation, he said. 

Those who predict only a gradual pace of rate hikes often cite the fragility of the economic recovery as backing their positions. A government report Thursday showed Japan’s economy contracted in the first quarter, while data for the end of 2023 were revised lower to show no growth. The economy hasn’t expanded since the April-June quarter of 2023. 

Still, signs of feebleness in the recovery aren’t likely to derail the BOJ from the path toward hikes as the output gap is already around 0% and a contraction wouldn’t make a meaningful difference in measuring the magnitude of monetary easing, Sekine said.

The BOJ projected last month that consumer prices excluding fresh food and energy would rise 2.1% in the fiscal year starting in April 2026. That is an important message from the bank that BOJ watchers should bear in mind, as authorities are hinting at the need for the rate to be higher, Sekine said. 

“There is nothing pre-determined,” Sekine said. “Within the realm of common sense, they will raise rates gradually by taking an opportunistic approach.” 

©2024 Bloomberg L.P.