A former chief economist at the Bank of Japan stated on Monday that a peace agreement between the US and Iran is highly unlikely to change the central bank's established expectation for two interest rate hikes this year.

In an interview, Seisaku Kameda said that with current intensifying price pressures, the Bank of Japan is scheduled to raise its short-term policy rate from 0.75% to 1% on Tuesday, a move widely anticipated by the market. He noted that if not for the recent conflict in the Middle East, this rate hike was originally planned for April.

The announcement that the US and Iran have reached a framework agreement to end hostilities, involving the lifting of US sanctions on Iran and the resumption of navigation through the Strait of Hormuz, has directly contributed to a decline in oil prices.

He analyzed that if the peace deal successfully facilitates the full reopening of the strait, it could alleviate pressure on the Bank of Japan, potentially reducing the need for the central bank to aggressively suppress inflation through faster-than-expected rate hikes.

Seisaku Kameda, who maintains close communication with current policymakers, pointed out, "However, this does not alter the central bank's core path. Current real borrowing costs remain relatively low, and the bank plans to maintain a pace of about two rate hikes per year, gradually normalizing monetary policy."

He added that following a rate hike in June, the Bank of Japan is likely to raise rates again in October or December. After the June policy meeting, the bank will also hold regular policy meetings in July and September.

Following Tuesday's hike, Japan's policy rate will reach its highest level in 31 years, marking another significant step in the process of monetary policy normalization. Previously, Japan has been persistently troubled by imported price pressures stemming from energy shocks related to the conflict involving Iran.

Surveys indicate that economists widely predict the central bank will raise rates to 1% in June, followed by another increase to 1.25% in the fourth quarter.

After the conclusion of this two-day policy meeting, Deputy Governor Shinichi Uchida will hold a press conference on June 16. Governor Kazuo Ueda is currently hospitalized due to a liver cyst infection and will be unable to attend this meeting.

Kameda assessed that Uchida will reiterate the central bank's stance of continuing to raise rates. However, given the ongoing uncertainties in the Middle East situation, he is unlikely to specify the exact timing of the next rate hike.

He stated, "Uchida is adept at using ambiguous, open-ended language in policy communication. With the overall outlook highly uncertain, he will signal that the central bank is prepared to respond flexibly to changing circumstances."

Seisaku Kameda, who contributed to the Bank of Japan's economic outlook reports from 2020 to 2022, currently serves as the chief economist at the Sompo Japan Research Institute.